<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 1-12246
NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 95-4549193
(State of incorporation) (I.R.S. Employer Identification No.)
2951 28th Street, Suite 3001, Santa Monica, CA 90405
(Address of principal executive offices) (Zip Code)
</TABLE>
(310) 664-4100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
12,395,395 shares of common stock, $.01 par value, as of October 27, 1997
Page 1 of 23
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets of National Golf Properties,
Inc. as of September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations of National Golf
Properties, Inc. for the three months ended September
30, 1997 and 1996 4
Consolidated Statements of Operations of National Golf
Properties, Inc. for the nine months ended September 30,
1997 and 1996 5
Consolidated Statements of Cash Flows of National Golf
Properties, Inc. for the nine months ended September 30,
1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II. Other Information 20
Exhibit Index 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------------- ---------------------
<S> <C> <C>
ASSETS
PROPERTY:
Land $ 66,962 $ 63,049
Buildings 162,514 147,678
Ground improvements 284,853 263,803
Furniture, fixtures and equipment 33,552 30,531
Construction in progress 15,603 10,733
-------- --------
563,484 515,794
Less: accumulated depreciation (88,716) (73,031)
-------- --------
Net property 474,768 442,763
Cash and cash equivalents 3,004 11,224
Investments 305 286
Mortgage notes receivable 2,200 2,971
Investment in joint venture 8,035 -
Due from affiliates 1,872 -
Other assets, net 8,796 12,701
-------- --------
Total assets $498,980 $469,945
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $260,238 $229,949
Accounts payable and other liabilities 7,266 3,134
Due to affiliates - 641
-------- --------
Total liabilities 267,504 233,724
-------- --------
Minority interest 18,233 20,831
-------- --------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized - none issued - -
Common stock, $.01 par value, 40,000,000
shares authorized, 12,392,895 and 12,303,720
shares issued and outstanding at September
30, 1997 and December 31, 1996, respectively 124 123
Additional paid in capital 217,909 219,985
Accumulated deficit (1,360) (1,360)
Unamortized restricted stock compensation (3,430) (3,358)
-------- --------
Total stockholders' equity 213,243 215,390
-------- --------
Total liabilities and
stockholders' equity $498,980 $469,945
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Revenues:
Rent from affiliates $18,532 $15,448
Rent 814 586
Equity in income from joint venture 48 -
------- -------
Total revenues 19,394 16,034
------- -------
Expenses:
General and administrative 1,535 1,062
Depreciation and amortization 6,306 5,154
Net loss on sale of properties 59 -
------- -------
Total expenses 7,900 6,216
------- -------
Operating income 11,494 9,818
Other income (expense):
Interest income 88 141
Other income 44 59
Interest expense (4,978) (3,900)
------- -------
Income before provision for taxes and
minority interest 6,648 6,118
Provision for taxes (52) (92)
------- -------
Income before minority interest 6,596 6,026
Income applicable to minority interest (2,844) (2,625)
------- -------
Net income $ 3,752 $ 3,401
======= =======
Net income per share $ 0.30 $ 0.29
======= =======
Weighted average number of shares 12,521 11,829
======= =======
Distribution declared per common share
outstanding $ 0.43 $ 0.42
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------- ---------------------
<S> <C> <C>
Revenues:
Rent from affiliates $ 52,952 $ 42,006
Rent 2,357 961
Equity in income from joint venture 48 -
Gain on sale of properties 158 25
-------- -------
Total revenues 55,515 42,992
-------- -------
Expenses:
General and administrative 4,034 3,676
Depreciation and amortization 18,191 13,452
-------- -------
Total expenses 22,225 17,128
-------- -------
Operating income 33,290 25,864
Other income (expense):
Interest income from affiliates - 1,682
Interest income 268 316
Other income 519 164
Interest expense (14,241) (9,973)
-------- -------
Income before provision for taxes and
minority interest 19,836 18,053
Provision for taxes (165) (203)
-------- -------
Income before minority interest 19,671 17,850
Income applicable to minority interest (8,554) (8,076)
-------- -------
Net income $ 11,117 $ 9,774
======== =======
Net income per share $ 0.89 $ 0.88
======== =======
Weighted average number of shares 12,505 11,072
======== =======
Distribution declared per common share
outstanding $1.27 $1.24
======== =======
</TABLE>
The accompanying notes are an intergral part of these financial statements.
5
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,117 $ 9,774
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,191 13,452
Amortization of restricted stock 1,135 768
Minority interest in earnings 8,554 8,076
Distributions from joint venture, net
of equity in earnings 2 -
Gain on sale of properties (158) (25)
Other adjustments 68 84
Changes in assets and liabilities:
Other assets 2,568 (324)
Accounts payable and other
liabilities 4,256 3,330
Due from/to affiliates (1,461) (2,112)
-------- --------
Net cash provided by
operating activities 44,272 33,023
-------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities (4,714) (5,344)
Proceeds from sale of available-for-
sale securities 4,695 5,672
Proceeds from mortgage loans 732 25,395
Purchase of property and related assets (51,960) (71,931)
Investment in joint venture (8,036) -
Proceeds from sale of properties and
related assets 3,613 1,078
-------- --------
Net cash used by investing
activities (55,670) (45,130)
-------- --------
Cash flows from financing activities:
Principal payments on notes payable (68,335) (60,983)
Proceeds from notes payable 97,050 99,759
Loan costs - (406)
Repurchase of OP units - (116)
Proceeds from stock options exercised 1,174 428
Cash distributions (15,581) (13,090)
Limited partners' cash distributions (11,130) (10,799)
-------- --------
Net cash provided by
financing activities 3,178 14,793
-------- --------
Net increase (decrease) in cash (8,220) 2,686
Cash and cash equivalents at beginning of
period 11,224 7,089
-------- --------
Cash and cash equivalents at end of period $ 3,004 $ 9,775
======== ========
Supplemental cash flow information:
Interest paid $ 10,087 $ 7,008
Taxes paid 188 242
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
National Golf Properties, Inc. (the "Company") owns substantially all of
the golf courses through its 58.4% general partner interest in National
Golf Operating Partnership, L.P. (the "Operating Partnership"). The
Operating Partnership has an 89% general partner interest in Royal Golf,
L.P. II ("Royal Golf"). Unless the context otherwise requires, all
references to the Company's business and properties include the business
and properties of the Operating Partnership and Royal Golf.
The consolidated financial statements include the accounts of the Company,
the Operating Partnership and Royal Golf. All significant intercompany
transactions and balances have been eliminated.
The accompanying consolidated financial statements for the three and nine
months ended September 30, 1997 and 1996 have been prepared in accordance
with generally accepted accounting principles ("GAAP") and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. These
financial statements have not been audited by independent public
accountants, but include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial condition, results of operations and cash
flows for such periods. However, these results are not necessarily
indicative of results for any other interim period or for the full year.
The accompanying consolidated balance sheet as of December 31, 1996 has
been derived from the audited financial statements, but does not include
all disclosures required by GAAP.
Certain information and footnote disclosures normally included in financial
statements in accordance with GAAP have been omitted pursuant to
requirements of the Securities and Exchange Commission. Management
believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1996.
The computation of primary earnings per share is based on the weighted
average number of outstanding common shares during the period and the
incremental shares, using the treasury stock method, from stock options.
The computation of fully diluted earnings per share is less than 3%
dilutive and accordingly has not been presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
SFAS No. 128 supersedes and simplifies the existing computational
guidelines under Accounting Principles Board Opinion No. 15, "Earnings Per
Share." It is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes,
7
<PAGE>
SFAS No. 128 eliminates the presentation of primary earnings per share
("EPS") and replaces it with basic EPS for which common stock equivalents
are not considered in the computation. It also revises the computation of
diluted EPS. There is no material impact anticipated to the Company's
earnings per share, financial condition, or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components. This statement requires a
separate statement to report the components of comprehensive income for
each period reported. The provisions of this statement are effective for
fiscal years beginning after December 15, 1997. The Company has available-
for-sale securities which under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," requires the securities to be
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity. The
net unrealized gains are considered comprehensive income, which are
immaterial.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and require that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement is
effective for financial statements for periods beginning after December 15,
1997. Management believes this statement will not require expanded
disclosure in the Company's financial statements.
(2) Property
--------
During the nine months ended September 30, 1997, the Company purchased six
golf courses for an aggregate initial investment of approximately $46.1
million. The acquisitions have been accounted for utilizing the purchase
method of accounting, and accordingly, the acquired assets are included in
the statement of operations from the date of acquisition. Initial
investment amount includes purchase price, closing costs and other direct
costs associated with the purchase. The aforementioned golf courses are
leased to American Golf Corporation ("AGC") pursuant to long-term triple
net leases.
8
<PAGE>
<TABLE>
<CAPTION>
Acquisition Initial
Date Course Name Location Investment
- --------------------- ---------------------- ------------------- --------------------
(In thousands)
<S> <C> <C> <C>
1/2/97 Stonecreek Golf Course Phoenix,
Arizona $ 9,447
1/10/97 Tamarack Golf Club Naperville,
Illinois 5,393
4/10/97 Baymeadows Golf Club Jacksonville,
Florida 4,556
5/1/97 The Golf Club at Woodstock,
Bradshaw Farm Georgia 6,598
7/31/97 Longwood Golf Club Cypress,
Texas 9,685
8/12/97 Eagle Brook Country Geneva,
Club Illinois 10,436
_________
Total Initial Investment $ 46,115
=========
</TABLE>
On May 23, 1997, the Company sold Stonebridge Country Club in New Orleans,
Louisiana for $1 million. The Company recognized a gain of approximately
$156,000.
On September 12, 1997, the Company sold Skyline Woods Country Club in
Elkhorn, Nebraska for $2.5 million. The Company recognized a gain of
$2,000.
(3) Investment in Joint Venture
---------------------------
On September 8, 1997, the Operating Partnership acquired a 50% general
partner interest in Pumpkin Ridge Joint Venture ("Pumpkin") for
approximately $8 million. Pumpkin owns two golf courses in Cornelius,
Oregon. The Company accounts for its investment in Pumpkin under the
equity method of accounting. The aforementioned golf courses are leased to
AGC pursuant to a long-term triple net lease.
(4) Notes Payable
-------------
The Company has a $100 million credit facility, which terminates in April
2002, from a group of four commercial banks that may be used to finance
working capital, acquisitions and capital improvements. The Company has two
interest rate options under the credit facility depending upon the length
of time the advances are outstanding. For advances which will be
outstanding for less than a month, the advances bear interest at prime. At
September 30, 1997, such rate was 8.5%. For advances which will be
outstanding for one month or more, the advances bear maximum interest at a
floating rate equal to LIBOR plus a spread of
9
<PAGE>
1.125%. The spread will be reduced upon the Company's receipt of specified
credit ratings. There were outstanding advances of $54.5 million under this
credit facility as of September 30, 1997.
In connection with the purchase of Eagle Brook Country Club, the Company
entered into a three year collateralized note for $1.5 million with the
seller of the property. During the first year of the note, no interest
shall be paid or accrued on the outstanding principal balance. Thereafter,
interest shall accrue on the outstanding principal balance at the rate of
six percent per annum.
(5) Lease Rental Agreements
-----------------------
The minimum rent for the first year for each golf course under the leases
is initially set at a fixed amount. Thereafter, with respect to the leases
for the initial portfolio of golf courses at the time of the completion of
the Company's initial public stock offering on August 18, 1993 (the
"Offering"), minimum rent will be increased each year by 4% or, if lower,
150% of the annual percentage increase in the Consumer Price Index ("CPI")
(the "Base Rent Escalation"). For these leases, percentage rent will be
paid to the Company each year in the amount, if any, by which the sum of
35% of course revenue in excess of a baseline amount plus 5% of other
revenue in excess of a baseline amount exceeds the cumulative Base Rent
Escalation since the commencement date of such leases. Generally, for the
leases entered into subsequent to the Offering, the rent is based upon the
greater of (a) the minimum base rent or (b) a specified percentage of
course revenue and other revenue. The minimum base rent under these leases
will be increased for specified years during the lease term based upon
increases in the CPI, provided that each such annual CPI increase shall not
exceed five percent. On an interim basis, percentage rent is recognized
taking into consideration the seasonality of the golf courses. Such
percentage rent income for the nine months ended September 30, 1997 and
1996 was approximately $4,808,000 and $3,886,000, respectively.
(6) Deferred Compensation Plan
--------------------------
During 1997, the Company established a deferred compensation plan under
which key executives of the Company may elect to defer receiving up to 100%
of their compensation in any one year until a later year.
(7) Pro Forma Financial Information
-------------------------------
The pro forma financial information set forth below is presented as if the
1997 acquisitions (Note 2) had been consummated as of January 1, 1997 and
1996.
The pro forma financial information is not necessarily indicative of what
actual results of operations of the Company would have been assuming the
acquisitions had been consummated as of January 1, 1997 and 1996, nor does
it purport to represent the results of operations for future periods.
10
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE
(In thousands, except per share amounts) MONTHS ENDED SEPTEMBER 30,
- ------------------------------------------------------ -----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues from rental property $ 56,758 $ 46,299
Net income $ 10,895 $ 9,296
Net income per share $ 0.87 $ 0.84
</TABLE>
The pro forma financial information includes the following adjustments:
(i) an increase in depreciation and amortization expense; (ii) an increase
in interest expense; and (iii) a decrease in income applicable to minority
interest.
(8) Statement of Cash Flows - Supplemental Disclosures
--------------------------------------------------
Non-cash transactions for the nine months ended September 30, 1997 include
$1.5 million of a golf course acquisition which was financed by a note
payable.
Non-cash transactions for the nine months ended September 30, 1996 include
(i) approximately $40.8 million of golf course acquisitions which were
financed by the issuance of 1,577,820 shares of Company common stock; (ii)
the assumption of approximately $25.2 million of debt; (iii) approximately
$1.9 million in capital improvements accrued but not paid; (iv)
approximately $1.5 million of golf course acquisitions which were financed
by the issuance of 61,339 OP Units; and (v) approximately $900,000 in
seller financing related to the sale of Wootton Bassett Golf Club by the
Company.
(9) Other Data
----------
AGC is the lessee of all but five of the golf course properties in the
Company's portfolio at September 30, 1997. David G. Price, the Chairman of
the Board of Directors of the Company, owns approximately 5.4% of the
Company's outstanding Common Stock and approximately 38.5% of the Operating
Partnership and a controlling interest in AGC. AGC is a golf course
management company that operates a diverse portfolio of golf courses for a
variety of golf course owners including municipalities, counties and
others. AGC does not own any golf courses, but rather manages and operates
golf courses either as a lessee under leases, generally triple net, or
pursuant to management agreements. AGC derives revenues from the operation
of golf courses principally through receipt of green fees, membership
initiation fees, membership dues, golf cart rentals, driving range charges
and sales of food, beverages and merchandise.
The following table sets forth certain condensed unaudited financial
information concerning AGC:
11
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------- -------------------
(In thousands)
<S> <C> <C>
Current assets $ 97,383 $ 57,511
Non-current assets 141,005 131,654
-------- --------
Total assets $ 238,388 $ 189,165
======== ========
Current liabilities $ 61,667 $ 50,993
Long-term liabilities 69,095 68,041
Minority interest 706 466
Stockholders' equity 106,920 69,665
-------- --------
Total liabilities and stockholders' equity $ 238,388 $ 189,165
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------------
1997 1996
-------------------- ------------------
<S> <C> <C>
(In thousands)
Total revenues $ 410,785 $ 339,069
======== ========
Net income $ 37,630 $ 21,945
======== ========
</TABLE>
Total revenues from golf course operations and management agreements for
AGC increased by $71.7 million, or 21.1%, to $410.8 million for the nine
months ended September 30, 1997 compared to $339.1 million for the nine
months ended September 30, 1996. The increase in revenues was primarily
attributable to the addition of eight leased courses and one management
course.
Net income increased by $15.7 million to $37.6 million for the nine months
ended September 30, 1997 compared to $21.9 million for the corresponding
nine months of 1996. The increase in net income was primarily due to the
increase in leased and management courses.
(10) Subsequent Events
-----------------
On October 2, 1997, the Board of Directors declared a distribution of $0.43
per share for the quarter ended September 30, 1997 to stockholders of
record on October 31, 1997, which distribution will be paid on November 14,
1997.
On October 10, 1997, the Company purchased Gettysvue Polo, Golf & Country
Club located in Knoxville, Tennessee for approximately $6.5 million. In
connection with this purchase, the Company entered into a seven-year,
interest bearing, collateralized note for $3,750,000 with the seller of the
property. During the first year of the note, no interest shall be paid or
accrued on the outstanding principal balance. For years two through four,
the interest rate is six percent per annum. For years five through seven,
the interest rate is eight percent per annum.
12
<PAGE>
On October 17, 1997, the Company purchased Oakhurst Country Club located in
Clayton, California for approximately $9.4 million. On October 24, 1997,
the Company purchased Spanish Hills Country Club located in Camarillo,
California for approximately $16.9 million.
13
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
- --------
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto. The forward-looking
statements included in Management's Discussion and Analysis of Finanical
Condition and Results of Operations ("MD&A") relating to certain matters involve
risks and uncertainties, including anticipated financial performance, business
prospects, anticipated capital expenditures and other similar matters, which
reflect management's best judgement based on factors currently known. Actual
results and experience could differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements as a
result of a number of factors, including but not limited to those discussed in
MD&A.
The discussion of the results of operations compares the three months ended
September 30, 1997 with the three months ended September 30, 1996 and the nine
months ended September 30, 1997 with the nine months ended September 30, 1996.
Results of Operations
- ---------------------
Comparison of the three months ended September 30, 1997 to the three months
ended September 30, 1996
Net income increased by $351,000 to $3,752,000 for the three months ended
September 30, 1997 compared to $3,401,000 for the three months ended September
30, 1996. The net increase was primarily attributable to: (i) an increase in
rent revenue of approximately $3,312,000; (ii) an increase in general and
administrative expenses of approximately $473,000; (iii) an increase in
depreciation and amortization expense of approximately $1,152,000; (iv) an
increase in interest expense of approximately $1,078,000; and (v) an increase in
income applicable to minority interest of $219,000.
The increase in rent revenue was primarily attributable to: (i) the acquisition
of ten golf course properties subsequent to September 30, 1996, which accounted
for approximately $1,793,000 of the increase; (ii) a full quarter of rent in
1997 on 26 golf course properties acquired in the third quarter of 1996, which
accounted for approximately $616,000 of the increase; (iii) an increase in
percentage rents under the leases with respect to the golf course properties
owned at June 30, 1996, which represents an increase of approximately $568,000;
and (iv) the increase in base rents under the leases with respect to the golf
course properties owned at June 30, 1996, which accounted for approximately
$335,000 of the increase.
The increase in general and administrative expenses was primarily due to (i)
costs associated with investor relations and (ii) the increase in restricted
stock amortization resulting from the issuance of additional shares of
restricted stock. The increase in depreciation and amortization expense was due
to: (i) the acquisition of ten golf course properties subsequent to September
30, 1996 and (ii) a full quarter of depreciation expense in 1997 on 26 golf
course properties acquired in the third quarter of 1996.
14
<PAGE>
The rent revenue from the third quarter acquisitions of two golf course
properties represented approximately $281,000 of the total rent revenue of $19.3
million. The depreciation and amortization expense for these acquisitions
represented approximately $151,000 of the total depreciation and amortization
expense of $6.3 million.
The increase in interest expense was primarily attributable to (i) the $75
million fixed rate, unsecured notes issued in 1996 and (ii) the increase in
outstanding advances under the credit facility.
Comparison of the nine months ended September 30, 1997 to the nine months ended
September 30, 1996
Net income increased by $1,343,000 to $11,117,000 for the nine months ended
September 30, 1997 compared to $9,774,000 for the nine months ended September
30, 1996. The net increase was primarily attributable to: (i) an increase in
rent revenue of approximately $12,342,000; (ii) an increase in general and
administrative expense of approximately $358,000; (iii) an increase in
depreciation and amortization expense of approximately $4,739,000; (iv) a
decrease in interest income from affiliates of approximately $1,682,000; (v) an
increase in other income of approximately $355,000; (vi) an increase in
interest expense of approximately $4,268,000; and (vii) an increase in income
applicable to minority interest of $478,000.
The increase in rent revenue was primarily attributable to: (i) the acquisition
of ten golf course properties subsequent to September 30, 1996, which accounted
for approximately $3,614,000 of the increase; (ii) a full nine months of rent
in 1997 on 30 golf course properties acquired in the first nine months of 1996,
which accounted for approximately $7,089,000 of the increase; (iii) an increase
in percentage rents under the leases with respect to the golf course properties
owned at December 31, 1995, which represents an increase of approximately
$560,000; and (iv) the increase in base rents under the leases with respect to
the golf course properties owned at December 31, 1995, which accounted for
approximately $1,079,000 of the increase.
The increase in general and administrative expenses was primarily due to the
increase in restricted stock amortization resulting from the issuance of
additional shares of restricted stock. The increase in depreciation and
amortization expense was due to: (i) the acquisition of ten golf course
properties subsequent to September 30, 1996 and (ii) a full nine months of
depreciation expense in 1997 on 30 golf course properties acquired in the first
nine months of 1996.
The rent revenue from the 1997 acquisitions of six golf course properties
represented approximately $1.9 million of the total rent revenue of $55.3
million. The depreciation and amortization expense for these acquisitions
represented approximately $905,000 of the total depreciation and amortization
expense of $18.2 million.
The decrease in interest income from affiliates was due to the retirement of the
participating mortgages in July 1996. The increase in other income was
primarily attributable to the excess land sales. The increase in interest
expense was primarily attributable to (i) the $75 million fixed rate,
15
<PAGE>
unsecured notes issued in 1996 and (ii) the increase in outstanding advances
under the credit facility.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the Company had approximately $3 million in cash and
investments, mortgage loans of $2.2 million, mortgage indebtedness of
approximately $26.6 million and unsecured indebtedness of approximately $233.6
million. The $260.2 million principal amount of mortgage and unsecured
indebtedness bears interest at a weighted average rate of 7.87%. Of the $260.2
million of debt, $205.7 million is fixed rate debt and is payable either
quarterly or semi-annually and matures between 1999 and 2008.
In order to maintain its qualification as a real estate investment trust
("REIT") for federal income tax purposes, the Company is required to make
substantial distributions to its stockholders. The following factors, among
others, will affect funds from operations and will influence the decisions of
the Board of Directors regarding distributions: (i) increase in debt service
resulting from additional indebtedness; (ii) scheduled increases in base rent
under the leases with respect to the golf courses; and (iii) any payment to the
Company of percentage rent under the leases with respect to the golf courses.
Although the Company receives most of its rental payments on a monthly basis, it
has and intends to continue to pay distributions quarterly.
The Company anticipates that its cash from operations and its bank line of
credit, described below, will provide adequate liquidity to conduct its
operations, fund administrative and operating costs, interest payments, capital
improvements and acquisitions and allow distributions to the Company's
stockholders in accordance with the Code's requirements for qualification as a
REIT and to avoid any corporate level federal income or excise tax. Capital
improvements for which the Company is responsible would be limited to mandated
projects or projects intended to add value to the property. For golf courses
acquired through October 27, 1997, the Company is required under the leases to
pay for various remaining capital improvements totaling approximately $17.5
million, of which approximately $16.3 million will be paid during the next two
years. The Company believes these improvements will add value to the golf
courses and bring the quality of the golf courses up to the Company's expected
standards. Any subsequent capital improvements are the responsibility of the
lessees. Upon completion of the capital improvements, the base rent payable
under the leases with respect to these golf courses will be adjusted to reflect,
over the initial term of the leases, the Company's investment in such
improvements.
Future acquisitions will be made subject to the Company's investment objectives
and policies established to maximize both current income and long-term growth in
income. The Company's liquidity requirements with respect to future
acquisitions may be reduced to the extent the Company uses common stock or OP
Units as consideration for such purchases. The Company currently has with a
group of four commercial banks a $100 million credit facility, which terminates
in April 2002. The Company has two interest rate options under the credit
facility depending upon the length of time the advances are outstanding. For
advances which will be outstanding for less than a month, the advances bear
interest at prime. At September 30, 1997, such rate was 8.5%. For advances
which will be outstanding for one month or more, the
16
<PAGE>
advances bear maximum interest at a floating rate equal to LIBOR plus a spread
of 1.125%. The spread will be reduced upon the Company's receipt of specified
credit ratings. There were outstanding advances of $78 million and $54.5 million
under the credit facility, bearing interest at a weighted average rate of 7% and
6.9%, as of October 27, 1997 and September 30, 1997, respectively.
For the period January 1, 1997 through October 27, 1997 the Company purchased
nine golf courses for an aggregate initial investment of approximately $79.3
million, which investment was financed by $6.3 million of cash from operations,
$67.7 million of advances under the Company's credit facility and $5.3 million
in seller financing. Also, the Company acquired a 50% general partner interest
in Pumpkin for approximately $8 million. Pumpkin owns two golf courses. The
investment was financed with advances under the Company's credit facility.
The limited partners of the Operating Partnership have the right, exercisable
once in any 12 month period, to sell up to one-third of their OP Units or
exchange up to the greater of 75,000 OP Units or one-third of their OP Units to
the Company. If the OP Units are sold for cash, the Company will have the
option to pay for such OP Units with available cash, borrowed funds or from
the proceeds of an offering of common stock. If the OP Units are exchanged for
shares of common stock, the Operating Partnership limited partner will receive
the number of shares of common stock having a market value at the time of
exercise equal to the fair market value of the OP Units being exchanged.
Other Data
- ----------
The Company believes that to facilitate a clear understanding of the historical
consolidated operating results, funds from operations should be examined in
conjunction with net income as presented in the Consolidated Financial
Statements. Funds from operations is considered by management as an appropriate
measure of the performance of an equity REIT because it is predicated on cash
flow analyses, which management believes is more reflective of the value of real
estate companies such as the Company rather than a measure predicated on
generally accepted accounting principles which gives effect to non-cash
expenditures such as depreciation. Funds from operations is generally defined
as net income (loss) plus certain non-cash items, primarily depreciation and
amortization. Funds from operations should not be considered as an alternative
to net income as an indication of the Company's performance or as an alternative
to cash flow as a measure of liquidity.
The funds from operations presented may not be comparable to funds from
operations for other REITs. The following table summarizes the Company's funds
from operations for the nine months ended September 30, 1997 and 1996.
17
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
(In thousands)
1997 1996
-------------------- --------------------
<S> <C> <C>
Net income $ 11,117 $ 9,774
Minority interest 8,554 8,076
Depreciation and amortization 18,194 13,452
Gain on sale of properties (158) (25)
Excess land sales (448) -
Amortization - loan costs (165) (103)
Depreciation - corporate (53) (36)
-------- --------
Funds from operations 37,041 31,138
Company's share of funds from operations 56.51% 54.75%
-------- --------
Company's funds from operations $ 20,932 $ 17,048
======== ========
</TABLE>
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make distributions to its stockholders.
The Company's distributions to stockholders have been less than the total funds
from operations because the Company is obligated to make certain payments with
respect to principal debt and capital improvements. Management believes that to
continue the Company's growth, funds in excess of distributions, principal
reductions and capital improvement expenditures should be invested in assets
expected to generate returns on investment to the Company commensurate with the
Company's investment objectives and policies.
Inflation
- ---------
All the leases of the golf courses provide for base and participating rent
features. All of such leases are triple net leases requiring the lessees to pay
for all maintenance and repair, insurance, utilities and services, and, subject
to certain limited exceptions, all real estate taxes, thereby minimizing the
Company's exposure to increases in costs and operating expenses resulting from
inflation.
Seasonality
- -----------
Although the results of operations of the Company have not been significantly
impacted by seasonality, the Company generally expects that its results of
operations may be adversely affected as a function of reduced payments of
percentage rent in the first and fourth quarters of each year due to adverse
weather conditions and the scheduled closure of golf courses located in harsh
winter climates.
New Pronouncements Issued But Not Yet Effective
- -----------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No.
128 supersedes and simplifies the existing computational guidelines under
Accounting Principles Board Opinion No. 15, "Earnings Per Share." It is
effective for financial statements issued for periods ending after December
18
<PAGE>
15, 1997. Among other changes, SFAS No. 128 eliminates the presentation of
primary earnings per share ("EPS") and replaces it with basic EPS for which
common stock equivalents are not considered in the computation. It also revises
the computation of diluted EPS. There is no material impact anticipated to the
Company's earnings per share, financi al condition, or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components. This statement requires a separate statement to report the
components of comprehensive income for each period reported. The provisions of
this statement are effective for fiscal years beginning after December 15, 1997.
The Company has available-for-sale securities which under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," requires the
securities to be reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity. The net unrealized gains are considered comprehensive income, which are
immaterial.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and require that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for periods
beginning after December 15, 1997. Management believes this statement will not
require expanded disclosure in the Company's financial statements.
19
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a)10.1 Form of Lease Agreement between the Company and AGC with respect to the
following golf courses: Southwyck, Dub's Dread, Kokopelli,
Summitpointe, Lake Wilderness, Links at Northfork, Hershey, Hershey
South, Canyon Oaks, Capitol City, Binks Forest, Port Royal, Shipyard,
Sugar Ridge, Wildhorse, Goshen Plantation, Hickory Heights, River's
Edge, Berry Creek, Creekside, Honey Bee, Wood Ranch, Monterey, Palm
Valley, Ruffled Feathers, Upland Hills, Oregon Golf, Golden Oaks,
Chesapeake, SeaCliff, Ancala, Arrowhead, BlackLake, Painted Desert,
Walden, Deer Creek, WestWinds, Stonecreek, Tamarack, Baymeadows,
Bradshaw Farm, Longwood, Eagle Brook, Gettysvue, Oakhurst and Spanish
Hills; and Form of Lease Agreement between the Company and Cobblestone
Golf Group, Inc. with respect to the Carmel Mountain golf course and
the Sweetwater golf course (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K dated February 29, 1996)
10.2 Pumpkin Ridge Joint Venture Joint Venture Agreement, dated as of
September 8, 1997, by and among National Golf Operating Partnership,
L.P. and Pumpkin Ridge Partners
10.3 Lease Agreement, dated as of September 8, 1997, between Pumpkin Ridge
Joint Venture and AGC
10.4 USGA Agreement, made and entered into as of September 8, 1997, by and
between Pumpkin Ridge Joint Venture and AGC
11.1 Statement regarding computation of per share earnings
27 Financial Data Schedule
20
<PAGE>
(b) None
21
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Golf Properties, Inc.
Date: October 30, 1997 By: /s/ William C. Regan
--------------------
William C. Regan
Vice President - Controller
and Treasurer
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- --------- ------------------------------------------------------------- --------------------
<S> <C> <C>
10.1 Form of Lease Agreement between the Company and AGC with
respect to the following golf courses: Southwyck, Dub's
Dread, Kokopelli, Summitpointe, Lake Wilderness, Links at
Northfork, Hershey, Hershey South, Canyon Oaks, Capitol
City, Binks Forest, Port Royal, Shipyard, Sugar Ridge,
Wildhorse, Goshen Plantation, Hickory Heights, River's Edge,
Berry Creek, Creekside, Honey Bee, Wood Ranch, Monterey,
Palm Valley, Ruffled Feathers, Upland Hills, Oregon Golf,
Golden Oaks, Chesapeake, SeaCliff, Ancala, Arrowhead,
BlackLake, Painted Desert, Walden, Deer Creek, WestWinds,
Stonecreek, Tamarack, Baymeadows, Bradshaw Farm, Longwood,
Eagle Brook, Gettysvue, Oakhurst and Spanish Hills; and Form
of Lease Agreement between the Company and Cobblestone Golf
Group, Inc. with respect to the Carmel Mountain golf course
and the Sweetwater golf course (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K
dated February 29, 1996)
10.2 Pumpkin Ridge Joint Venture Joint Venture Agreement, dated
as of September 8, 1997, by and among National Golf
Operating Partnership, L.P. and Pumpkin Ridge Partners
10.3 Lease Agreement, dated as of September 8, 1997, between
Pumpkin Ridge Joint Venture and AGC
10.4 USGA Agreement, made and entered into as of September 8,
1997, by and between Pumpkin Ridge Joint Venture and AGC
11.1 Statement regarding computation of per share earnings
27 Financial Data Schedule
</TABLE>
23
<PAGE>
EXHIBIT 10.2
PUMPKIN RIDGE JOINT VENTURE
JOINT VENTURE AGREEMENT
-----------------------
1. Parties.
-------
This Joint Venture Agreement (the "Agreement") is dated as of September 8,
1997, by and among NATIONAL GOLF OPERATING PARTNERSHIP L.P., a Delaware limited
partnership ("NGP") and PUMPKIN RIDGE PARTNERS, an Oregon Partnership ("PRP").
The parties are sometimes referred to as the "Venturers".
2. Recitals.
--------
2.1. PRP is an Oregon partnership whose sole partners are Oregon Central
Corporation, a Delaware corporation ("OCC") and Pacific Estates, Ltd., an Oregon
corporation ("PEL").
2.2. PRP is the owner of that certain thirty-six hole golf course facility
located in Cornelius, Oregon situated on the land ("Land") described in the
title report ("Title Report") attached hereto as Exhibit "A".
2.3. The Venturers desire to form a joint venture (the "Venture") for the
purpose of acquiring and leasing the Land and other items constituting the
Property (as defined below).
2.4. Immediately upon acquisition, the Venture will lease the Property to
American Golf Corporation, a California corporation ("AGC") pursuant to a
fifteen-year net lease on terms and conditions acceptable to the Venture and AGC
("Operating Lease").
-1-
<PAGE>
3. Definitions.
-----------
The following words, when capitalized in this Agreement, will have the
following meanings:
3.1. "Act" means the Oregon Uniform Partnership Act, being Chapter 68 of
the Oregon Revised Statutes.
3.2. "Affiliate" means any individual, partnership, corporation, limited
liability company, trust, or other entity or association, directly or
indirectly, controlled by or under common control with another. The term
"control" means with respect to a corporation or limited liability company the
right to exercise, directly or indirectly, more than fifty percent (50%) of the
voting rights attributable to the controlled corporation or limited liability
company, and, with respect to any individual, partnership, trust, other entity
or association, the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of the controlled entity.
3.3. "AGC" means American Golf Corporation, a California corporation.
3.4. "Agreement" means this Joint Venture Agreement, together with any
future written amendments.
3.5. "Appurtenances" means all appurtenances, easements, reversionary
rights and all other rights, privileges, and entitlements belonging to or
running with the Land, all awards for damage to the Land or the Improvements or
for the taking by
-2-
<PAGE>
eminent domain, and all zoning and land use entitlements and development rights
pertaining to the Land.
3.6. "Arbitrator" means a real estate appraiser who is a member of the
American Institute of Real Estate Appraisers and who is qualified, knowledgeable
and has at least ten (10) years' prior experience in the appraisal of golf
properties in the United States.
3.7. "Bankruptcy" means:
3.7. (a) The voluntary filing by a Venturer of a petition under the
Federal Bankruptcy Code, or any other applicable Federal or state bankruptcy,
insolvency or similar law, or the consent by a Venturer to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar person) of it or any substantial part of its
assets, or the making by it of any assignment for the benefit of creditors, or
its written admission of its inability to meet its debts as such debts become
due; or
3.7.(b) The entry of a decree or order for relief by a court having
jurisdiction in respect of a Venturer in an involuntary case under the Federal
bankruptcy laws, or any other applicable Federal or state bankruptcy, insolvency
or other similar laws, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar person) of the Venturer or
for any substantial part of its assets, or ordering the winding-up or
liquidation of its affairs, and the continuance
-3-
<PAGE>
of any such decree or order unstayed and in effect for a period of sixty (60)
consecutive days.
3.8. "Capital Account" shall mean the account of a Venturer that is
maintained in accordance with the provisions of Section 7.5.
3.9. "Capital Contributions" means all contributions by the Venturers to
the capital of the Venture.
3.10. "Claims" has the meaning set forth in Section 18.1.
3.11. "Closing" shall mean the closing of the Venture's acquisition of
the Property and the execution and delivery of the Operating Lease. The Closing
is subject to certain conditions described in Section 8.3.
3.12. "Closing Date" shall mean September 8, 1997, or such other date
as the parties may mutually agree, which shall be the date upon which the
Venturers make their initial Capital Contributions and the Closing occurs.
3.13. "Closing Documents" shall mean those documents scheduled in
Exhibit "D" hereto which will be recorded and delivered at Closing.
3.14. "Code" means the Internal Revenue Code of 1986, as amended, and
any successor thereto. Any references herein to specific sections of the Code
shall be deemed to include a reference to any corresponding provisions of future
law.
3.15. "Contracts" are the Contracts scheduled in Exhibit "C."
-4-
<PAGE>
3.16. "Credits" means investment tax credits and other tax credits
available to the Venturers in connection with the Venture.
3.17. "Default Loan" means an advance made by a Venturer pursuant to
Section 15.2.
3.18. "Default Notice" means a notice delivered by a Venturer to the
other Venturers pursuant to Section 15.1.
3.19. "Defaulting Venture" means any Venturer or its Successor who has
committed an uncured Event of Default.
3.20. "Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
fiscal year or other period, except that if the Gross Asset Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such fiscal year or other period, Depreciation shall be an amount that bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction for such fiscal year
or other period, bears to such beginning adjusted tax basis; provided that if
the adjusted basis for federal income tax purposes of an asset at the beginning
of such fiscal year or other period, is zero, Depreciation shall be determined
with reference to such beginning Gross Asset Value using any reasonable method
selected by the Managing Venturer.
-5-
<PAGE>
3.21. "Distributable Cash" means all cash of the Venture from all sources,
excluding:
3.21. (a) all amounts necessary for payment of any Liabilities of the
Venture then due;
3.21. (b) such additional amounts as the Managing Venturer may
reasonably determine to be necessary or desirable as a reserve for any future
Liabilities of the Venture; and
3.21. (c) Any recovery under the Title Policy.
3.22. "Escrow" means the escrow established by Escrow Holder whereby
the Venture will acquire the Property.
3.23. "Escrow Holder" means First American Title Insurance Company of
Oregon (attn. Patricia Parsons).
3.24. "Event of Default" means any of the events, acts or omissions
specified in Section 15.1.
3.25. "Exercise Notice" has the meaning set forth in Section 14.1.
3.26. "Fair Market Value" means the price a ready, willing and able
purchaser would pay for the assets of the Venture, taking into account the
maturity of the Property, the terms of the Operating Lease, and NGP's then
current standard investment criteria for purchasing golf course properties
(e.g., NGP's then customary rate of return, cash flow projections, and related
factors) as well as all Liabilities and restrictions against the Venture's
assets, if those assets were available for sale on the open market for a
reasonable period of time. In determining Fair Market Value, the assets shall
be valued based
-6-
<PAGE>
on their then current use as income-producing assets (and not highest and best
use), and the replacement cost of such assets shall not be considered.
3.27. "Golf Course" means that certain thirty-six hole golf course located
on the Land, including driving range and practice areas.
3.28. "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
3.28. (a) The initial Gross Asset Value of any asset contributed by a
Venturer to the Venture shall be the gross fair market value of such asset, as
determined by the contributing Venturer and the other Venturers;
3.28. (b) The Gross Asset Values of all Venture assets shall be
adjusted to equal their respective gross fair market values, as reasonably
determined by the Managing Venturer, as of the following times: (i) the
acquisition of an interest or an additional interest in the Venture by any new
or existing Venturer in exchange for more than a de minimis capital
contribution; (ii) the distribution by the Venture to a Venturer of more than a
de minimis amount of property or money as consideration for an interest in the
Venture; and (iii) the liquidation of the Venture within the meaning of Treasury
Regulations (S) 1.704-1(b) (2) (ii) (g); provided, however, that adjustments
--------- -------
pursuant to clauses (i) and (ii) above shall be made only if the Managing
Venturer reasonably determines that such
-7-
<PAGE>
adjustments are necessary or appropriate to reflect the relative economic
interests of the Venturers;
3.28. (c) The Gross Asset Values of Venture assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts, pursuant to Treasury Regulations (S) 1.704-1(b)(2)(iv)(m); provided,
---------
however, that Gross Asset Values shall not be adjusted pursuant to this
- -------
paragraph (c) to the extent the Managing Venturer determines that an adjustment
pursuant to paragraph (b) hereof is necessary or appropriate in connection with
a transaction that would otherwise result in an adjustment pursuant to this
paragraph (c); and
3.28.(d) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to paragraphs (a), (b), or (c), such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Net Income and Net Loss.
3.29. "Improvements" means all buildings, structures and other improvements
located upon the Land, including, without limitation, two clubhouse buildings, a
maintenance facility, the Golf Course, landscaping improvements, manmade lakes
and water retention ponds, irrigation system, parking facilities, and all other
improvements of any nature or description located on the Land.
-8-
<PAGE>
3.30. "Intangible Personal Property" means all of PRP's right, title,
and interest in the intangible property that is appurtenant to the ownership,
operation and use of the Real Property and the Personal Property, including,
without limitation: (a) all governmental permits, approvals, licenses, and
certificates of occupancy; (b) all architectural and engineering drawings; (c)
any proprietary rights PRP may have with respect to the name "Pumpkin Ridge Golf
Club"; (d) tradenames, trademarks, service marks and logos; (e) all product and
service warranties and guaranties; and (f) all rights to the recovery of
judgments with respect to claims first arising after Closing, books and records,
and telephone numbers. Intangible Personal Property will exclude, however, the
Member Notes (as defined in the Shortfall Agreement).
3.31. "Initial Capital" means the initial Capital Contributions to be
made by the Venturers pursuant to Section 7.1.
3.32. "Interest" means all of the right, title and interest of a
Venturer in the Venture, the Property, and any assets of the Venture.
3.33. "Interest Value" means an amount equal to the amount that a
Venturer would receive if all of the Venture's assets were sold for their Fair
Market Value, all the Venture's Liabilities (to the extent not taken into
account in determining Fair Market Value) were paid in full, the Venture then
was dissolved, Net Income and Net Loss allocated, and the proceeds
-9-
<PAGE>
distributed among the Venturers in accordance with Section 16.3. For purposes
of determining Interest Value, there will be no discount for a minority
Interest.
3.34. "Inventory" means all professional shop merchandise and inventory
and food and beverage consummables.
3.35. "Land" means the land described in the Title Report.
3.36. "Liabilities" means all claims, demands, debts, obligations,
duties, costs, expenses, losses and damages, including, without limitation,
attorneys' fees and costs.
3.37. "Managing Venturer" has the meaning set forth in Section 9.1.
3.38. "Membership Agreement" means that certain "Agreement in Respect
of Memberships" by and among PRP, AGC, and the Venture.
3.39. "Negotiation Period" has the meaning set forth in Section 14.2.
3.40. "Net Income" or "Net Loss" means, for each fiscal year or other
period, an amount equal to the Venture's taxable income or loss for such fiscal
year or period (for this purpose, all items of income, gain, loss, or deduction
required to be stated separately pursuant to Code Section 703 (a) (1) shall be
included in taxable income or loss) with the following adjustments:
3.40.(a) Any income of the Venture that is exempt from federal
income tax and not otherwise taken into account in
-10-
<PAGE>
computing Net Income or Net Loss pursuant to this definition shall be added to
such taxable income or loss;
3.40.(b) Any expenditures of the Venture described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations (S) 1.704-1(b) (2) (iv) (i), and not otherwise taken into
account in computing Net Income or Net Loss pursuant to this definition, shall
be subtracted from such taxable income or loss;
3.40.(c) Gain or loss resulting from any disposition of Venture
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of;
3.40.(d) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year or other
period; and
3.40.(e) Any items which are specially allocated pursuant to Section
11.8 hereof, any profit from the Title Policy specially allocated to NGP
pursuant to Section 11.1 or any loss or deduction relating to the Shortfall
Account (referenced in the Shortfall Agreement) and specially allocated to PRP
pursuant to Section 11.1 shall not be taken into account in computing Net Income
or Net Loss.
3.40.(f) The amounts of the items of Venture income, gain, loss, or
deduction available to be specifically allocated pursuant to Section 11.8
hereof, any profit from the Title Policy
-11-
<PAGE>
specially allocated to NGP pursuant to Section. 11.1 or any loss or deduction
relating to the Shortfall Account (referenced in the Shortfall Agreement) and
specially allocated to PRP pursuant to Section 11.1 shall be determined by
applying rules analogous to those set forth in subparagraphs (a) through (d) of
this definition.
3.41. "Non-defaulting Venturer" means any Venturer or its Successor
who has not committed an Event of Default that at the time in question is
uncured.
3.42. "Non-Recourse Deductions" has the meaning set forth in Treasury
Regulations (S) 1.704-2(b)(1).
3.43. "Operating Lease" means the lease referenced in Section 2.4 of
this Agreement. Whenever this Agreement refers to any provision of the
Operating Lease, the reference shall be a reference to the Detailed Lease
Provisions of the Operating Lease unless otherwise indicated.
3.44. "Permitted Title Exceptions" means exceptions 2 through 13,
appearing in the Title Report.
3.45. "Permitted Transfer" means any of the Transfers described in
Section 13.3.
3.46. "Personal Property" means all items of personal property
described in Exhibit "B" hereto, but shall not in any event include any
Inventory.
3.47. "Prime Rate" means the base rate charged by banks for loans to
corporate customers of highest credit standing as announced in the Wall Street
-----------
Journal.
- -------
-12-
<PAGE>
3.48. "Property" means collectively the following: the Land, the
Improvements, the Water and Mineral Rights, the Appurtenances, the Personal
Property, and the Intangible Property.
3.49. "PRP" means Pumpkin Ridge Partners, an Oregon partnership.
3.50. "Put" has the meaning set forth in Section 14.1.
3.51. "Real Property" means collectively the following:
the Land, the Improvements, the Water and Mineral Rights, and the Appurtenances.
3.52. "Shortfall Agreement" means that certain Shortfall Agreement
executed, or to be executed, by and between PRP and/or OCC and PEL and AGC.
3.53. "Successor" means a Venturer's heirs, executors, trustees,
receivers, administrators, representatives, liquidators, sequestrators,
custodians, successors or assigns.
3.54. "Title Company" means the title company which issued the Title
Report.
3.55. "Title Policy" has the meaning set forth in Section 8.4(b).
3.56. "Title Report" means the title report or commitment attached
hereto as Exhibit "A".
3.57. "Transfer" means a transfer by sale, lease, assignment,
attachment, pledge, hypothecation, encumbrance, grant of security interest,
will, intestate succession, gift or otherwise, whether voluntary, involuntary or
by operation of law.
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<PAGE>
3.58. "Transfer Offer" means a written notice delivered by one
Venturer to the other Venturer pursuant to Section 13.2.
3.59. "Treasury Regulations" means regulations adopted by the Treasury
Department of the United States governing application and enforcement of the
Code. Any reference to a section or provision of the Treasury Regulations shall
be deemed to refer also to such section or provision as amended or superseded.
3.60. "Venture" means the joint venture formed by the Venturers and
governed by this Agreement.
3.61. "Venture Closing Costs" has the meaning set forth in Section
8.4(c).
3.62. "Venture Minimum Gain" shall mean the same as "partnership
minimum gain" as set forth in Treasury Regulations (S)(S) 1.704-2(b)(2) and
1.704-2(d).
3.63. "Venture Percentages" means each Venturer's respective
percentage interest in the Venture as set forth in Section 7.3, subject to the
possible adjustment provided in Section 7.4.
3.64. "Venture Voting Percentages" means each Venturer's percentage
vote regarding any matter on which the vote of the Venturers is required
hereunder or by applicable law. Each Venturer's Voting Percentage will be equal
to its Venture Percentage except that so long as PRP (or any entity of which OCC
and PEL are joint owners) is a Venturer, the voting rights of PRP or such entity
will be exercised by OCC, PEL, and their permitted
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<PAGE>
transferees under Section 13.3 in accordance with their percentage interests in
PRP or such entity so that each of OCC and PEL will initially have a Venture
Voting Percentage of twenty-five percent (25%).
3.65. "Venturer Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulations (S) 1.704-2(b) (4) for "partner nonrecourse debt."
3.66. "Venturer Nonrecourse Debt Minimum Gain" shall mean an amount,
with respect to each Venturer Nonrecourse Debt, equal to the Venture Minimum
Gain that would result if such Venturer Nonrecourse Debt were treated as a
nonrecourse liability, determined in accordance with Treasury Regulations
(S) 1.704-2(i)(3).
3.67. "Venturer Nonrecourse Deductions" shall with respect to any
Venturer Nonrecourse Debt, have the meaning set forth in Treasury Regulations
(S)(S) 1.704-2(i)(1) and 1.704-2(i)(2) for "partner nonrecourse deductions."
3.68. "Venturers" means the parties hereto and such other persons as
may be admitted to the Venture as substituted or additional joint venturers.
3.69. "Water Documents" means all documents, agreements, and permits
(together with all amendments or modifications thereto) evidencing PRP's
entitlement to a water supply for the operation and maintenance of the Golf
Course.
3.70. "Water and Mineral Rights" means all water rights, riparian
rights, appropriative rights, water allocations and
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<PAGE>
water stock, including, without limitation, all of PRP's rights and interests
under the Water Documents, and all minerals, oil, gas and other hydrocarbons
located in or beneath the Land, along with all rights to surface and subsurface
entry.
4. Organization.
------------
4.1. Formation. The Venturers hereby associate themseljves as an Oregon
---------
general partnership formed pursuant to the Act and the other laws of the State
of Oregon. The rights and obligations of the Venturers shall be as provided
under the Act unless otherwise provided in this Agreement.
4.2. Name. The name of the Venture is "Pumpkin Ridge Joint Venture" and
----
the principal place of business of the Venture is 12930 NW Old Pumpkin Ridge
Road, Cornelius, Oregon 97113-6147, or at such other place as Managing Venturer
may establish from time to time.
4.3. Filing and Recording The Venturers each agree to execute and perform
--------------------
all filing, recording, publishing and other acts necessary to form and operate a
general partnership in all jurisdictions where the Venture may conduct business.
5. Purpose.
-------
The purpose of the Venture is to acquire, own, and provide for the
operation of the Property, and to perform all other acts necessary or incidental
thereto.
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<PAGE>
6. Term.
----
The term of the Venture will commence on the date hereof and will dissolve
on the earliest to occur of the following:
(a) December 31, 2050;
(b) the mutual written agreement of Venturers whose Venture Voting
Percentages total at least sixty-six and two-thirds percent (66 2/3%);
or
(c) the occurrence of events, acts or omissions resulting in dissolution as
otherwise provided in this Agreement or by law.
7. Capital Contributions and Venture Percentages.
---------------------------------------------
7.1. Initial Capital. The Venturers will contribute the following Initial
---------------
Capital to the Venture:
7.1. (a) NGP will contribute Eight Million Dollars ($8,000,000) cash
to the Venture. NGP will deposit into Escrow such contribution (together with
closing costs and net prorations owing by NGP) one (1) day prior to the Closing
Date provided that all conditions to Closing have timely been satisfied in full.
7.1.(b) PRP will convey fee title to the Property to the Venture
free and clear of all liens and encumbrances of whatever nature except for the
Permitted Title Exceptions.
7.2. Additional Capital. The Venturers agree to contribute a total of up
------------------
to Seventy-Five Thousand Dollars ($75,000) as and when required by the Managing
Venturer in order to fund the Venture's obligations under Paragraph 22 of the
Basic Lease
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<PAGE>
Provisions of the Operating Lease. Each Venturer's obligation will be equal to
its Venture Percentage multiplied by the total amount required (not to exceed
$75,000). Except for the foregoing, the Venturers do not anticipate that any
additional capital will be required for the operation of the Venture. However,
if due to unforeseen circumstances additional capital is required, the Venture
will, to the maximum extent possible, attempt to borrow such funds as are
required from third party lenders at commercially reasonable rates; provided
that any Venturer may match such rate and terms and make the loan itself. If the
Venture is unable to borrow such funds, then any Venturer may lend sufficient
funds to the Venture to satisfy its capital requirements in which case the sums
so advanced will be treated as a loan by such Venturer bearing interest at the
Prime Rate (as the Prime Rate may vary from time to time) plus 4%. Interest and
principal then due and payable in respect of all such loans will be payable
prior to any distributions to Venturers. If more than one Venturer desires to
advance funds pursuant to this Section 7.2, each such Venturer will loan funds
to the Venture in relative proportion of each lending Venturer's Venture
Percentage, or as they otherwise agree in writing.
7.3. Initial Venture Percentages. The Venture Percentages for each Venturer
---------------------------
will be as follows:
(a) NGP - 50%
(b) PRP - 50%
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<PAGE>
7.4. Adjustment to Venture Percentage. Should the total of "Annual Base
--------------------------------
Rent" and "Additional Rent" (as such terms are defined in the Operating Lease)
payable to the Venture under the Operating Lease exceed Two Million Five Hundred
Thousand Dollars ($2,500,000) for each of any three (3) consecutive calendar
years during the Initial Term of the Operating Lease, then commencing on January
1 of the calendar year immediately succeeding the third consecutive calendar
year and continuing thereafter, the Venture Percentages for each Venturer will
be as follows:
(a) NGP - 44.44%
(b) PRP - 55.56%
By way of example, if total Annual Base Rent and Additional Rent for
each of 1999, 2000, and 2001 paid to the Venture under the Operating Lease
exceeds $2,500,000, then commencing January 1, 2002, the Venture Percentages
will be adjusted as set forth in this Section 7.4. In connection with an
adjustment to the Venture Percentages pursuant to this Section 7.4, PRP's
Capital Account shall be increased as of the effective date of such adjustment
so that its Capital Account is 1.250225 times NGP's Capital Account as of such
date.
7.5. Capital Accounts.
----------------
7.5. (a) A capital account (each, a "Capital Account") shall be
established on the books of the Venture for each Venturer. Each Venturer's
Capital Account shall be increased by: (i) the amount of cash contributed to the
Venture by such Venturer, (ii) the fair value of any non-cash assets contributed
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by such Venturer, as fixed by agreement at the time of contribution, less the
amount of any liabilities assumed by the Venture incidental to such contribution
or to which the contributed assets are subject, (iii) such Venturer's share of
Net Income, as allocated in Section 11.1, and any items in the nature of income,
or gain specially allocated pursuant to Section 11.8 hereof and any profit from
the Title Policy specially allocated to NGP pursuant to Section 11.1 hereof, and
(iv) the amount of any Venture Liabilities that are assumed by such Venturer
(other than Liabilities that are secured by any Venture property distributed to
such Venturer). Each Venturer's Capital Account shall be decreased by: (i) the
amount of cash and the fair market value of any property distributed by the
Venture to such Venturer (net of Liabilities secured by any distributed property
that such Venturer is consider to assume or take subject to), (ii) such
Venturer's share of Net Loss, as allocated in Section 11.1, and any items in the
nature of expenses or losses specially allocated to such Venturer pursuant to
Section 11.8 hereof, and any loss or deduction relating to the Shortfall Account
specially allocated to PRP pursuant to Section 11.1 hereof, and (iii) the amount
of any Liabilities of such Venturer that are assumed by the Venture (other than
Liabilities that are secured by any property contributed by such Venturer to the
Venture). If non-cash Venture assets are distributed in kind, Capital Accounts
shall be adjusted as if the assets had been sold
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<PAGE>
for fair market value (and gain or loss therefrom had been included in Net
Income or Net Loss) on the date of distribution.
7.5.(b) In the event any interest in the Venture is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor (to the extent related to the transferred
interest).
7.5.(c) In the event the Gross Asset Values of the Venture assets
are adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross
Asset Value, the Capital Accounts of the Venturers shall be adjusted
simultaneously to reflect the manner in which unrealized income, gain, loss, and
deduction, inherent in the Venture's property (that has not been previously
reflected in the Venturers' Capital Accounts) would be allocated pursuant to
Sections 11.1 and 11.8 if there were a disposition of such property at fair
market value.
7.5.(d) The foregoing provisions of this Section 7.5 are intended
to comply with Treasury Regulations (S)(S) 1.704-1(b) and 1.704-2, and shall be
interpreted and applied in a manner consistent therewith.
7.5.(e) In the event AGC withdraws funds from the Shortfall Account
(as defined in Section 11.1), the amount of such withdrawal shall in each
instance be treated as a contribution to capital by PRP at the time of such
withdrawal.
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8. Conveyance of the Property.
--------------------------
8.1. PRP's Obligation. PRP will convey fee title to the Property to the
----------------
Venture on the Closing Date free and clear of all title exceptions save and
except for the Permitted Title Exceptions. The closing of such conveyance will
be accomplished through the Escrow which will be established with Escrow Holder.
Concurrently herewith, the parties will take such steps (including execution of
instructions) as are necessary to open the Escrow. Escrow Holder will confirm
the date of opening of Escrow by written notification to the parties delivered
on such date.
8.2. Membership Arrangements; Contracts. Effective upon the Closing, the
----------------------------------
obligations to members as described in Paragraph 15 of Exhibit "G" and in
Exhibit "C" to the Membership Agreement will be allocated pursuant to the
Membership Agreement. In addition, PRP will assign the Contracts to AGC and the
Venture will cause AGC to assume the same.
8.3. Preclosing Covenants and Closing Conditions. Prior to the Closing
-------------------------------------------
Date, PR? shall comply fully with the covenants set forth in Exhibit "F". Each
of the following are conditions precedent to NGP's obligations under this
Agreement:
8.3. (a) Performance of Covenants. The timely performance by PRP in
------------------------
full of all covenants and duties to be performed by them under this Agreement on
or prior to the Closing.
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<PAGE>
8.3.(b) Representations are True. The representations and
------------------------
warranties made by PRP to NGP in this Agreement shall be true and correct on the
Closing Date with the same force and effect as though those representations and
warranties had been made on the Closing Date. If requested by NGP, PRP shall
execute and deliver to NGP prior to the Closing a certificate updating the
representations and warranties of such parties through Closing and disclosing
any new matters relating to the Property.
8.3.(c) Funding Pursuant to Shortfall Agreement. At or prior to
---------------------------------------
Closing, PRP will deposit, or cause to be deposited, the sum of Three Hundred
Thousand Dollars ($300,000) into the Security Account (as defined in the
Shortfall Agreement) pursuant to the Shortfall Agreement.
8.3(d) Board Approval. Prior to the Closing Date, the Board of
--------------
Directors of NGP's general partner shall have approved the transaction
contemplated hereby.
8.3.(e) Operating Lease. Immediately prior to the Closing, the
---------------
Venture and AGC shall have executed and delivered the Operating Lease which
Operating Lease shall be effective on Closing.
If any of such conditions fail to occur, then unless waived in writing
by NGP, the Escrow and the transaction contemplated hereby will terminate and no
party will have any further obligation to any other party hereunder or otherwise
with respect to the Property, including the Operating Lease.
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<PAGE>
8.4. Closing Obligations.
-------------------
8.4. (a) Prior to the Closing Date, PRP shall deliver each of the
Closing Documents to NGP or Escrow Holder duly executed and acknowledged and in
recordable form where necessary and otherwise in form and content satisfactory
to NGP.
8.4. (b) On the Closing Date, Escrow Holder will record the Deed (as
defined in Exhibit "D"), deliver the originals of all other Closing Documents to
the Venture in care of NGP, and issue to the Venture in care of NGP its owner's
policy of title insurance ("Title Policy") in the amount of Eight Million
Dollars ($8,000,000) subject only to the Permitted Title Exceptions and
containing such customary endorsements as NGP requests, including, without
limitation, a non-imputation endorsement.
8.4. (c) PRP will be responsible for the payment of survey costs,
excise taxes, sales taxes, and title insurance premiums. Transfer taxes and
escrow fees will be paid one-half by NGP and one-half by PRP. The costs and
fees required to be paid by PRP pursuant to the preceding two sentences are the
"Venture Closing Costs". NGP shall pay the cost of preparing own Phase I
environmental report and its own building and mechanical report. Each party
shall pay its own legal fees and incidental expenses in connection with the
transaction contemplated herein. Except for the amounts required to be paid by
the Venture pursuant to Section 8.5(b) and except to the extent such items are
separately prorated between PRP and AGC,
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<PAGE>
real property taxes and all other relevant items of income and expense relative
to the Property scheduled in Exhibit "E" will be prorated between PRP and AGC as
of the Closing Date. At Closing, the Member Notes (as defined in the Shortfall
Agreement) with respect to the sale of memberships shall be delivered to AGC who
will collect and disburse the same in accordance with the Shortfall Agreement.
8.4. (d) Upon the close of Escrow, PRP will deliver possession of
the Property to AGC under the Operating Lease.
8.5. Post-Closing Obligations. At the Closing, NGP will instruct Escrow
------------------------
Holder to use the Initial Capital to pay the following amounts immediately after
Closing:
8.5. (a) The Venture Closing Costs and any net prorations owing by
PRP.
8.5. (b) All of the debts, obligations and trade payables of PRP
listed in Exhibit "I" (including the trust deed obligations referenced in the
Title Report) up to the maximum amounts set forth therein with respect to each
such debt and obligation; provided that the obligation of the Venture to pay
such debts and obligations will not exceed the difference between Eight Million
Dollars ($8,000,000) and the total amount expended by the Venture pursuant to
Section 8.5(a). If the total of such debts and obligations exceed such maximum,
PRP will be solely liable for the excess and will pay the same immediately
through Escrow.
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<PAGE>
9. Management.
----------
9.1. Managing Venturer. The day-to-day business of the Venture will be
-----------------
managed by a Managing Venturer who will initially be NGP. Subject to the
restrictions of Section 9.2, the Managing Venturer will without compensation or
reimbursement for its internal overhead provide proper management of the affairs
of the Venture and shall have the management and control of the day-to-day
activities of the Venture and the authority and responsibility to represent it.
Without limiting the generality of the foregoing, the Managing Venturer shall
maintain or cause to be maintained the books and records of the Venture, prepare
or cause to be prepared the Venture's income tax returns and act as the "tax
matters partner" for the Venture as provided in Section 6221 of the Code,
subject to the limitations set forth in Section 9.2(1). The Venture will be
responsible to pay all reasonable and necessary third party costs incurred by
the Managing Venturer in good faith in connection with the discharge of its
management duties, such as fees and costs of attorneys, accountants and other
consultants. The Managing Venturer shall deposit all Venture funds in an
interest bearing bank account in the name of the Venture at Bank of America or
any other bank with at least $1 billion in assets and shall not commingle the
Venture's funds with any other funds. The Managing Venturer will make
distributions monthly to the Venturers in accordance with Section 11.6. The
Managing Venturer shall at all times enforce in good faith the Venture's rights
under the Operating Lease. In the
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<PAGE>
event of any dispute between the Venturers regarding whether the Managing
Venturer has enforced the Venture's rights under the Operating Lease in good
faith, such dispute will be submitted to binding arbitration before a single
arbitrator in the Los Angeles office of the American Arbitration Association
under its Commercial Arbitration Rules. The arbitrator's role will be limited
to deciding whether the Managing Venturer has enforced the Venture's rights
under the Operating Lease in good faith. In no event shall the arbitrator
substitute his or her business judgment for that of the Managing Venturer. If
the arbitrator finds that the Managing Venturer has acted in good faith in
enforcing the Venture's rights under the Operating Lease, then the Venturer(s)
who contested the Managing Venturer's good faith will be responsible for all
costs and fees incurred in connection with the arbitration including, without
limitation, the attorneys' fees incurred by the Managing Venturer. If the
arbitrator finds that the Managing Venturer has not acted in good faith in
enforcing the Venture's rights under the Operating Lease, then the Managing
Venturer will be responsible for all costs and fees incurred in connection with
the arbitration, including, without limitation, attorneys' fees incurred by the
contesting Venturer(s). In such case, the Managing Venturer will also comply
with any directives established by arbitrator.
9.2. Restrictions. The following actions may be taken only with the
------------
concurrence of Venturers whose Venture Voting
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<PAGE>
Percentages total sixty-six and two-thirds percent (66 2/3%) or more:
9.2. (a) The sale or conveyance of the Property (or any portion
thereof) or any other assets of the Venture, or the granting of any easements.
9.2. (b) Any capital call or borrowing or lending by the Venture
(including, without limitation, capital deficit loans described in Section 7.2),
the granting of any liens, encumbrances or security interests in the Venture,
the Property (or any portion thereof), or any other assets of the Venture.
9.2. (c) Except as provided in Section 11.7, the filing, release,
settlement or compromise of any claim, debt, demand, suit or judgment in
connection with the Property or the Venture or the confession of any judgment
against the Venture.
9.2. (d) The amendment, modification or termination of the Operating
Lease, the making of major decisions or approvals required to be made by the
Venture thereunder, or the taking of measures to insure AGC's compliance with
its operating and maintenance obligations thereunder. Major decisions under the
Operating Lease consist of the following: (i) conversion of Ghost Creek to a
private club or Witch Hollow to a public course, (ii) any change in operating or
maintenance standards or use of the Property pursuant to Section 7.1 of the
Operating Lease, (iii) agreements with the United States Golf Association and
related activities, (iv) approval of selection of general manager, director of
golf, superintendent of golf, and food and
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<PAGE>
beverage manager, (v) termination of the Operating Lease, (vi) approval of any
marketing material required to be approved by Landlord under Section 3.7 of the
Operating Lease, (vii) approval of the first year's membership plan under
Section 7.3 of the Operating Lease, (viii) taking any action requested by AGC
under Section 7.4 of the Operating Lease, (ix) the granting of any consent or
approval under Section 10.1 of the Operating Lease, (x) the decision to conduct
an audit of AGC's books and records pursuant to Section 3.3.5 of the Operating
Lease (provided that if the Venturers disagree regarding whether to conduct such
an audit, PRP may at its sole expense conduct such an audit, but not more
frequently than one time in any twelve (12) month period, (xi) any decision to
purchase any of AGC's personal property under Section 6.4 of the Operating
Lease, and (xii) the granting of consent to a proposed assignment or subletting
pursuant to Section 22.1 of the Operating Lease.
9.2. (e) Except for the Operating Lease and as permitted thereunder,
the Venture's leasing of the Property, or any portion thereof.
9.2. (f) The admission of another person as an additional or
substituted Venturer.
9.2. (g) The acquisition of any asset by the Venture other than
those constituting the Property and other than in the ordinary course of
business.
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<PAGE>
9.2. (h) The making or execution of any agreements binding on the
Venture outside of Venture's ordinary course of business.
9.2. (i) The incurring of capital improvement costs in excess of Two
Hundred Fifty Thousand Dollars ($250,000) in any twelve (12) month period or
approving any such expenditure in excess of $250,000 pursuant to the Operating
Lease.
9.2. (j) Procurement of any insurance apart from insurance, if any,
required to be procured by the Venture under the Operating Lease.
9.2. (k) The filing of any bankruptcy or reorganization proceedings
on behalf of the Venture, the making of any assignment for the benefit of
creditors, or the request of an appointment of a receiver for any of the
Venture's assets.
9.2. (1) Taking any action as tax matters partner under Code Section
6222 through 6232.
Each Venturer will designate an individual to render all decisions and
approvals required or requested under this Section 9.2. The initial
representatives of the Venturers are as follows:
NGP: Paul W. Major
PRP: Gay Davis, except that, for the exercise of voting
rights (including, without limitation, the giving of
any approvals or consents on behalf of PRP required
under this Agreement), the initial representatives of
PRP shall be the following, in each case to the
extent of the Venture Voting Percentage then
exercisable on behalf of OCC or PEL pursuant to
Section 3.64:
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<PAGE>
on behalf of OCC: Shigeru Ito
on behalf of PEL: Gay Davis
A Venturer may change such representative (or any successor representative) only
by written notice to the other Venturers. Until the representative is so
changed, the other Venturers shall be entitled to rely on the authority of the
incumbent representative.
9.3. Prohibition. Except for obligations that the Managing Venturer is
-----------
permitted to incur in the ordinary course pursuant to Section 9.1, as limited by
Section 9.2, no Venturer will at any time incur any Liability on behalf of the
Venture or enter into any agreement which purports to bind the Venture without
the prior written approval of Venturers whose combined Venture Voting
Percentages are at least sixty-six and two-thirds percent (66 2/3%).
9.4. Replacement of Managing Venturer. The other Venturer(s) acting
--------------------------------
unanimously may remove the Managing Venturer and appoint a new Managing Venturer
if, and only if, in performing its duties hereunder, the Managing Venturer
engages in gross negligence, wilful misconduct, or a knowing violation of the
law and such action results in material uncured damage to the Venture or any
other Venturer.
9.5. Mutual Indemnity. Each Venturer shall indemnify, protect, defend, and
----------------
hold harmless the Venture, and each of the other Venturers and their respective
owners, lessees, guarantors, officers, directors, partners, employees, and
agents from and
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<PAGE>
against any and all claims, demands, lawsuits, actions, proceedings,
liabilities, damages, losses, and expenses, including reasonable attorneys' fees
relating to any action taken by the indemnifying Venturer in violation of this
Agreement or arising out of the indemnifying Venturer's gross negligence, wilful
misconduct, or knowing violation of the law.
9.6. Competition. Each Venturer may, without liability to the others,
-----------
engage in any other activities for its own benefit or advantage, including
without limitation any golf course development, investment or related activity,
whether or not such activity is competitive with the business of the Venture, so
long as such activity does not involve the direct use of any tangible Venture
assets. Subject to the foregoing statement, no Venturer will have any
obligation to offer to the Venture any opportunity which may be presented to it
even though the opportunity is presented to the Venturer because it is a
Venturer.
10. Books and Records.
-----------------
10.1. Access. Each Venturer and its duly authorized representatives
------
will at all reasonable times have access to inspect and copy any books and
records of the Venture maintained by the Venture upon reasonable prior written
notice to Managing Venturer. The Venture will pay the costs of ordinary and
reasonable photocopying. The requesting Venturer will be responsible for any
extraordinary photocopying costs.
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<PAGE>
10.2. Tax Returns. On or before April 15th of each calendar year, the
-----------
Managing Venturer will prepare and deliver to the Venturers financial statements
for the Venture for the preceding fiscal year. The Managing Venturer will use
all reasonable efforts to prepare and deliver to the Venturers within ninety
(90) days after the close of each taxable year the tax information return for
the Venture for the preceding fiscal year, showing each Venturer's distributive
share of each item of profit, loss, credit, income, gain, or deduction, which a
Venturer is required to take into account separately on its individual Federal
income tax return.
10.3. Manner of Maintenance. The books, records, financial statements
---------------------
and tax returns of the Venture will be maintained and prepared at the Venture's
expense and in such manner as the Managing Venturer reasonably establishes.
10.4. Fiscal Year. The fiscal year of the Venture will be the calendar
-----------
year.
10.5. Bank Accounts. All funds of the Venture will be deposited in
-------------
such bank accounts as are so designated by Managing Venturer in accordance with
Section 9.1 and all withdrawals and disbursements of Venture funds will be made
by checks or drafts signed by those persons authorized to do so by the Managing
Venturer.
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11. Profits and Losses and Distributions.
------------------------------------
11.1. Allocation. Except as otherwise provided herein, in each fiscal
----------
year of the Venture, Net Income, Net Loss and Credits will be allocated among
the Venturers in accordance with their Venture Percentages for such year except
that (i) any profit resulting from any claim on the Title Policy will be
allocated entirely to NGP and (ii) any loss or deduction relating to withdrawals
from the Shortfall Account (as defined in the Shortfall Agreement) shall be
allocated entirely to PRP.
11.2. Initial Capital Accounts. As a result of NGP's contribution of
------------------------
the Initial Capital, NGP's Capital Account shall be credited in the amount of
Eight Million Dollars ($8,000,000). As a result of PRP's contribution of the
Property (subject to the debts and obligations referenced in Sections 8.4 and
8.5), PRP shall be entitled to a credit to its Capital Account of Eight Million
Dollars ($8,000,000).
11.3. Depreciation Recognition. Notwithstanding Section
------------------------
11.1, if taxable gain to be allocated pursuant to Section 11.1 includes income
treated as ordinary income for income tax purposes because it is attributable to
the recapture of depreciation, such gain so treated as ordinary income will be
allocated to and reported by the Venturers in proportion to their accumulated
allocations of the depreciation to be so recaptured, and the Venture will keep
and maintain records of such allocations.
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11.4. Section 754 Election. If there is a Transfer of an Interest in
--------------------
accordance with this Agreement, the Venture will, at the written request of the
transferee, file an election on behalf of the Venture pursuant to Section 754 of
the Code.
11.5. Allocation Between Transferor and Transferee. If there is a
--------------------------------------------
Transfer of an Interest in accordance with this Agreement, Net Income, Net Loss,
and Credits allocable to the Interest transferred will, to the extent
transferred, be allocated between the transferor and the transferee in
proportion to the number of days during that fiscal year that the Interest was
owned by each of them.
11.6. Distributable Cash. In each fiscal year of the Venture,
------------------
distributions of Distributable Cash will be made monthly among the Venturers in
accordance with their respective Venture Percentages.
11.7. Title Policy Allocation. The Venturers have agreed that
-----------------------
notwithstanding the fact that the Title Policy in the amount of Eight Million
Dollars ($8,000,000) will be issued to the Venture, NGP shall alone be entitled
to the benefits of such policy. Consequently, should the Venture have or assert
any claim under the Title Policy, the proceeds of such claim shall belong
exclusively to NGP and NGP, acting alone, shall be entitled to prosecute and
assert such claim.
11.8. Special Allocations. The following special allocations shall be
-------------------
made in the following order:
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11.8. (a) Minimum Gain Chargeback. Except as otherwise provided in
-----------------------
Treasury Regulations (S) 1.704-2(f), notwithstanding any other provision of this
Agreement, if there is a net decrease in Venture Minimum Gain during a fiscal
year, each Venturer shall be specially allocated items of Venture income and
gain for such fiscal year (and, if necessary, subsequent fiscal years) in an
amount equal to such Venturer's share of the net decrease in Venture Minimum
Gain, determined in accordance with Treasury Regulation 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Venturer pursuant thereto. The items
to be so allocated shall be determined in accordance with Treasury Regulations
(S)(S) 1.704-2(f)(6) and 1.704-2(j)(2). This Section 11.8(a) is intended to
comply with the minimum gain chargeback requirement in Treasury Regulations (S)
1.704-2(f) and shall be interpreted consistently therewith.
11.8. (b) Venturer Minimum Gain Chargeback. Except as otherwise
--------------------------------
provided in Treasury Regulations (S) 1.704-2(i)(4), notwithstanding any other
provision of this Agreement, if there is a net decrease in Venturer Nonrecourse
Debt Minimum Gain attributable to a Venturer Nonrecourse Debt during any fiscal
year, each Venturer that has a share of the Venturer Nonrecourse Debt Minimum
Gain attributable to such Venturer Nonrecourse Debt, determined in accordance
with Treasury Regulation (S) 1.704-2(i)(5), shall be specifically allocated to
items of Venture income and gain for such fiscal year (and, if necessary,
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subsequent fiscal years) in an amount equal to such Venturer's share of the net
decrease in Venturer Nonrecourse Debt Minimum Gain attributable to such Venturer
Nonrecourse Debt, determined in accordance with Treasury Regulations (S) 1.704-
2(i)(4). Allocations pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Venturer
pursuant thereto. The items to be so allocated shall be determined in
accordance with Treasury Regulations (S)(S) 1.704-2(i)(4) and 1.704-2(j)(2).
This Section 11.8(b) is intended to comply with the minimum gain chargeback
requirement in Treasury Regulations (S) 1.704-2(i)(4) and shall be interpreted
consistently therewith.
11.8. (c) Nonrecourse Deductions. Nonrecourse Deductions for any
----------------------
fiscal year shall be specially allocated to the Venturers in accordance with
their Venture Percentages.
11.8. (d) Venturer Nonrecourse Deductions. Any Venturer Nonrecourse
-------------------------------
Deductions for any fiscal year shall be specially allocated to the Venturer that
bears economic risk of loss with respect to the Venturer Nonrecourse Debt to
which such Venturer Nonrecourse Deductions are attributable in accordance with
Treasury Regulations (S) 1.704-2(i)(1)
11.8. (e) Curative Allocations. The allocations set forth in Section
--------------------
11.8(a), (b), (c) and (d) ("Regulatory Allocations") are intended to comply with
certain requirements of federal tax regulations. It is the intent of the
Venturers that, to the extent possible, all Regulatory Allocations shall be
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offset either with other Regulatory Allocations or with special allocations of
other items of Venture income, gain, loss or deduction pursuant to this Section
11.8. Therefore, notwithstanding any other provisions of this Agreement, (other
than the Regulatory Allocations), the Managing Venturer shall make such
offsetting special allocations of Venture income, gain, loss or deductions in
whatever manner the Managing Venturer determines appropriate so that, after such
offsetting allocations are made, each Venturer's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Venturer would
have had if the Regulatory Allocations were not a part of this Agreement and all
Venture items were allocated pursuant to Section 11.1. In exercising discretion
under this Section 11.8(e), the Managing Venturer shall take into account future
Regulatory Allocations under Section 11.8(a) and (b) that, although not yet
made, are likely to offset other Regulatory Allocations previously made under
Section 11.8(c) and (d).
11.9. Other Allocation Rules.
----------------------
11.9. (a) Partnership Items. Except as otherwise provided in this
-----------------
Agreement, all items of Venture income, gain, loss, deduction and any other
allocations not otherwise specifically provided for shall be divided among the
Venturers in the same proportions as they share Net Income or Net Loss, as the
case may be, for the period of such allocation.
11.9. (b) Excess Nonrecourse Liabilities. Solely for purposes of
------------------------------
determining a Venturer's proportionate share of the
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"excess nonrecourse liabilities" of the Venture within the meaning of Treasury
Regulations (S) 1.752-3(a)(3), the Venturers' interests in Profits are in
proportion to their Venture Interests.
11.10. Tax Allocations: Code (S) 704(c). In accordance with Code (S)
---------------------------------
704(c) and the Treasury Regulations thereunder, income, gain, loss and
deductions with respect to any property contributed to the capital of the
Venture shall, solely for tax purposes, be allocated among the Venturers so as
to take account of any variation between the adjusted basis of such property to
the Venture for federal income tax purposes and its initial Gross Asset Value
(computed in accordance with clause (a) of the definition of Gross Asset Value)
in accordance with the traditional method as set forth in Treasury Regulation
(S) 1.704-3(b). If the Gross Asset Value of any Venture asset is adjusted
pursuant to clause (b) or (c) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the hands of the
Venture in the same manner as under Code Section 704(c) and Treasury Regulations
thereunder. Allocations pursuant to the Section 11.10 are solely for income tax
purposes and shall not affect, or in any way be taken into account in computing,
any Venture Capital Account or share of Net Income, Net Loss, other items or
distributions pursuant to this Agreement.
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12. Partition.
---------
No Venturer will have the right to partition the Property, or any part
thereof, or any other assets of the Venture, nor may any Venturer make
application to any court or authority having jurisdiction in the matter nor
commence or prosecute any action or proceeding for partition or sale thereof.
If a Venturer breaches the provisions of this Article, the other Venturer(s), in
addition to any and all rights and remedies it or they may have hereunder or at
law or in equity, will be entitled to a decree or order restraining and
enjoining such application, action or proceeding.
13. Transfers of Interests in the Venture.
-------------------------------------
13.1. Certain Transfers Prohibited. Except for Permitted Transfers, no
----------------------------
Venturer may Transfer all or any portion of its Interest unless it first obtains
the prior written consent of other Venturers and unless it first complies with
the requirements of Section 13.2. Except for Permitted Transfers, no
shareholder shall Transfer any interest in OCC or PEL unless it first obtains
the prior written consent of NGP. Any Transfer or attempted Transfer in
violation of this Agreement automatically will be null and void and constitute
an Event of Default on the part of the responsible Venturer.
13.2. Right of First Offer. Prior to any Transfer (other than a
--------------------
Permitted Transfer), the transferring Venturer or its Successor shall
concurrently deliver to each of the other
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Venturers a written notice stating the name, address and telephone number of the
proposed transferee and all of the terms of the proposed or impending Transfer
(the "Transfer Offer"). Failure to so deliver the Transfer Offer will be an
Event of Default. The Transfer Offer will constitute an offer by such Venturer,
or its Successor, to Transfer its Interest to the other Venturers in accordance
with the terms of the Transfer Offer. Any or all of the other Venturers may
accept the Transfer Offer by delivering written notice of acceptance within
thirty (30) days after the Transfer Offer is received. If the Transfer Offer is
accepted, the offering Venturer's Interest will be transferred to the Venturer
or Venturers who timely elect to purchase in accordance with the terms of the
Transfer Offer and pay the purchase price therefor. If more than one Venturer
elects to purchase, the Interest shall be transferred and the consideration paid
pro rata in accordance with the respective Venture Percentages of the purchasing
Venturers. If the Transfer Offer is not timely accepted by any Venturer, the
offering Venturer or its Successor may Transfer its Interest for a period of one
hundred twenty (120) days after delivery of the Transfer Offer, but only in
accordance with the terms of the Transfer Offer. If such Transfer to such other
person is not completed within one hundred twenty (120) days after delivery of
the Transfer Offer, the selling Venturer or its Successor may not complete that
Transfer or any other Transfer of its Interest without again complying with the
foregoing procedures, and will not have the
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right to initiate the foregoing procedures more than twice in any twelve (12)
month period.
13.3. Permitted Transfers. Each of the following Transfers are
-------------------
Permitted Transfers and are not subject to any restrictions hereunder or under
Sections 13.1 and 13.2:
13.3. (a) A Transfer of an Interest to an existing Venturer.
13.3. (b) A Transfer to an Affiliate of the transferor.
13.3. (c) In the case of NGP, a Transfer in connection with a merger,
corporate reorganization, restructure, financing, or sale of a substantial
portion of NGP's assets or similar transaction.
13.3. (d) In the case of PRP, any transfers to OCC and/or PEL.
13.3. (e) In the case of PEL and OCC, a Transfer of an Interest to a
presently existing shareholder of PEL or OCC in liquidation of such
shareholder's interest in PEL or OCC.
13.3. (f) In the case of PEL and OCC, Transfers of shares among
persons who are existing shareholders of either OCC or PEL (or members of a
shareholder's family) pursuant to currently existing buy/sell arrangements among
such persons.
13.3. (g) In the case of PEL and OCC, a Transfer of a shareholder's
interest or an Interest to one or more members of such shareholder's family.
For purposes of Sections 13.2(e) and (f), members of a shareholder's family
shall be limited to the shareholder's spouse, parents, children, and
grandchildren.
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13.3. (h) A Transfer pursuant to Article 14.
13.4. Substituted Venturers. Except as provided below, no person may
---------------------
become a substituted Venturer until such person:
13.4. (a) Elects to become a substituted Venturer by delivering
written notice of such election to the nontransferring Venturers.
13.4. (b) Obtains written consent from Venturers owning at least
sixty-six and two-thirds percent (66 2/3%) of the Venture Voting Percentages.
13.4. (c) Executes and acknowledges such agreements as the Managing
Venturer reasonably deems necessary or advisable to effect the admission of such
person as a substituted Venturer, including, without limitation, the written
acceptance by such person of this Agreement and any other agreements that bind
the Venture.
13.4. (d) Pays a transfer fee to the Venture sufficient to pay all
reasonable expenses in connection with the Transfer and the admission of such
person as a substituted Venturer, including, without limitation, the costs of
preparing and recording an amendment to this Agreement and reasonable attorneys'
fees.
The restrictions contained in this Section 13.4 and in Section 13.5
shall not apply (i) to any Transfer of an Interest to an existing Venturer,
whether pursuant to Section 13.3(a), Article 14 or otherwise, or (ii) to a
Transfer pursuant to Section 13.3(d), Section 13.3(e), or Section 13.3(f). In
such
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case, the existing Venturer will also be considered a substitute Venturer to the
extent of the Interest transferred.
13.5. Limitation on Transferee's Rights. No transferee of an Interest
---------------------------------
(except for an existing Venturer) will have the right to exercise any rights
(other than to receive Profits, Losses, Credits and Distributable Cash to the
extent transferred), vote, require any information or an accounting from the
Venture, inspect the Venture's books and records, manage the Venture's business
or perform any duties in connection with the Property or the Venture, make or
approve any decisions, execute any agreements or otherwise bind the Venture or
any other Venturer, unless such person becomes a substituted Venturer in
accordance with Section 13.4.
13.6. No Dissolution. The Transfer of an Interest pursuant to a
--------------
Permitted Transfer or otherwise in accordance with this Agreement will not
dissolve the Venture. In such case, the Venture will continue, and the
allocation of Net Income, Net Loss, and Credits and proceeds attributable to the
Interest transferred will be prorated between the transferor and transferee as
provided in Section 11.5.
14. Certain Put Rights.
------------------
14.1. PRP Put. At any time after January 1, 2003, any one or more of
-------
the Non-Defaulting Venturers or their Successors (other than NGP) may by written
notice ("Exercise Notice") delivered to NGP require NGP to purchase its or their
entire
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Interest (the "Put"). If exercised, the purchase will close six (6) months after
delivery of the Exercise Notice or earlier at the option of NGP. Without
limiting the generality of the foregoing, a Successor who acquires an Interest
pursuant to Section 13.3(d), Section 13.3(e), or Section 13.3(f) may exercise
the Put.
14.2. Purchase Price. If the Put is exercised, the purchase price for
--------------
the Interest(s) which are the subject of the Put shall equal the Interest Value
of the Interest of each selling Venturer on the date of delivery of the Exercise
Notice. For a period of thirty (30) days after delivery of the Exercise Notice
("Negotiation Period"), NGP and the selling Venturer(s) will meet and confer in
an effort to agree on the Interest Value for the Interest of each selling
Venturer. If they are unable to agree during the Negotiation Period, such
Interest Value will be determined by arbitration under Section 14.3, et seq.
14.3. Arbitration. Within fifteen (15) days after expiration of the
-----------
Negotiation Period, NGP shall appoint one Arbitrator and the selling Venturer(s)
collectively shall appoint one Arbitrator. Each will notify the other within
such fifteen (15) day period of the identity of the Arbitrator it has appointed.
The Arbitrators will then each independently make a written determination of the
relevant Interest Value(s) within sixty (60) days after their appointment. Upon
completion of their determinations, the Arbitrators will promptly exchange their
findings and thereafter will meet and confer in an attempt
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to resolve any differences. If they cannot resolve their differences within
thirty (30) days after exchange of their findings and determinations, they will
jointly appoint a neutral third Arbitrator. The neutral Arbitrator's function
will be limited to determining which of the two written determinations prepared
by the parties' Arbitrators is most accurate. Such determination will be
conclusive and binding as to the relevant Interest Value(s). If the parties'
Arbitrators cannot agree on the third Arbitrator, he or she will be appointed by
the President of the American Institute of Real Estate Appraisers on the
application of any party. All Arbitrators (including the third or neutral
Arbitrator) will meet the qualifications set forth in Section 3.6.
14.4. Fees. NGP will pay the fees and expenses of the Arbitrator it
----
appoints and the selling Venturer(s) will pay the fees and expenses of the
Arbitrator it or they appoint. The fees and expenses of the third Arbitrator
will be divided equally between NGP and the selling Venturer(s).
14.5. Failure to Act. If either NGP or the selling Venturer(s) fail(s)
--------------
to appoint its (or their) Arbitrator timely or if one of the two Arbitrators
appointed by the parties fails to act in a timely manner, the determination of
relevant Interest Value(s) made by the Arbitrator appointed by the other will be
conclusive and binding on the parties.
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15. Default and Remedies.
--------------------
15.1. Event of Default. Any of the following events, acts or omissions
----------------
will be deemed a default (an "Event of Default") under this Agreement by the
responsible Venturer:
15.1. (a) The failure of a Venturer timely to contribute its share of
Initial Capital.
15.1. (b) The Bankruptcy of a Venturer.
15.1. (c) Transfer of an Interest in violation of this Agreement.
15.1. (d) Any material breach of any representation or warranty
contained in Section 17.1 or 17.2 which has not been cured in the manner set
forth in Section 15.1(e); provided that in the case of breaches contained in
Section 17.2, this provision will apply only if NGP has asserted a written claim
within the eighteen (18) month period described in Section 17.2 and the breach
involves damages in excess of $25,000.
15.1. (e) The failure by a Venturer to comply with any of the other
terms or conditions of this Agreement if such failure is not cured within thirty
(30) days after delivery of written notice of such failure (the "Default
Notice") from any other Venturer, unless such failure is monetary and cannot
reasonably be cured within such period and the defaulting Venturer immediately
takes action necessary to cure such failure and diligently proceeds to cure such
failure within seventy-five (75) days after delivery of the Default Notice. If
such failure
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is not susceptible of being cured, such failure will be deemed to be an Event of
Default upon the delivery of the Default Notice.
15.2. Remedies. If an Event of Default occurs, any Nondefaulting
--------
Venturer will have the right, but not the obligation, to exercise any one or
more or combination of the following rights and remedies (in addition to any
other rights and remedies available hereunder or at law or in equity) by
delivering written notice to the Defaulting Venturer(s) within one hundred
twenty (120) days after the Event of Default or the date that the Non-defaulting
Venturer becomes aware of the Event of Default, whichever is later:
15.2. (a) To attempt to remedy the failure which constitutes the
Event of Default, in which event any or all amounts paid or Liabilities incurred
by a Non-defaulting Venturer in connection therewith may, at the option of such
Non-defaulting Venturer, be deemed a loan by the Non-defaulting Venturer to the
Defaulting Venturer(s) (the "Default Loan"), which will bear interest on the
outstanding balance from the date advanced or incurred at a rate per annum equal
to five percent (5%) in excess of the Prime Rate. The Default Loan will be a
demand loan and, after demand, in addition to its right to immediate payment,
the Non-defaulting Venturer(s) who make the Default Loan irrevocably will be
entitled to receive all Distributable Cash and other proceeds which otherwise
would be distributed or paid to the Defaulting Venturer to repay fully the
Default Loan and any interest thereon. Each Defaulting Venturer hereby grants
and
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conveys to each Non-defaulting Venturer who makes a Default Loan to it a
security interest in its Interest to secure the repayment of a Default Loan and
any interest thereon.
15.2. (b) To bring any proceedings for equitable relief, including,
without limitation, specific performance and injunction.
15.2. (c) To pursue a claim for damages, subject to the limitation
contained in Section 18.1.
15.2. (d) If approved by Venturers collectively owning at least sixty-
six and two-thirds percent (66 2/3%) of the Venture Voting Percentages of all
Non-defaulting Venturers, to dissolve the Venture.
16. Dissolution.
-----------
16.1. No Dissolution in Certain Circumstances. None of the following
---------------------------------------
events will cause a dissolution of the Venture unless Venturers holding at least
sixty-six and two-thirds percent (66 2/3%) of the Venture Voting Percentages of
the remaining or unaffected Venturers so elect, in writing:
16.1. (a) The Bankruptcy or, except in connection with a Permitted
Transfer, dissolution of a Venturer.
16.1. (b) The Transfer of a Venturer's Interest in violation of this
Agreement.
16.1. (c) The withdrawal or expulsion of a Venturer.
16.2. Waiver of Right to Withdraw. During the term of this Agreement,
---------------------------
each Venturer waives any and all rights it may
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have to withdraw from the Venture or cause a voluntary dissolution of the
Venture, except specifically in accordance with this Agreement.
16.3. Liquidation. Upon the dissolution of the Venture, the Managing
-----------
Venturer (unless its action caused the dissolution under Section 16.1) will
liquidate the Venture's assets. If the Managing Venturer caused the
dissolution, then the other Venturers will so liquidate. The proceeds from any
such liquidation will be distributed as follows:
16.3. (a) First, to the payment of Liabilities of the Venture other
than those owing to the Venturers.
16.3. (b) Second, to the payment of Liabilities of the Venture owing
to the Venturers.
16.3. (c) Third, to the setting up of any reserves reasonably
necessary for future Liabilities of the Venture during the winding-up period.
16.3. (d) Fourth, to the Venturers, pro rata, to repay any positive
balances in their capital accounts after the allocation of Net Income and Net
Loss.
16.3. (e) Fifth, in accordance with Section 11.6. Such payments shall
be made at the end of such taxable year, or if later, within ninety (90) days
after the date of such liquidation.
16.4. Allocations. The Venture will continue to allocate Profits,
-----------
Losses, Credits and, except as set forth
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herein, Distributable Cash, during the windinq-up period in the manner in which
such allocations were made prior to dissolution.
16.5. Winding-Up. After the dissolution of the Venture, the business
----------
of the Venture may be continued but only to the extent necessary to allow an
orderly winding-up of the Venture's business and the liquidation of its assets.
16.6. Negative Capital Accounts. If any Venturer has a deficit balance
-------------------------
in his Capital Account following the liquidation of his interest in the Venture,
as determined after taking into account all Capital Account adjustments for the
Venture's taxable year during which the liquidation occurs, the Venturer shall
be unconditionally obligated to restore the amount of such deficit balance to
the Venture by the end of such taxable year or, if later, within 90 days after
the date of such liquidation.
16.7. Notices. Upon dissolution, the Venturers will take all steps
-------
necessary to accomplish the dissolution, including without limitation, the
publication, filing and delivery of notices required by law.
16.8. Distributions In Kind. After all of the Liabilities of the
---------------------
Venture have been paid, the Venturer who is liquidating the Venture's Assets
pursuant to Section 16.3 may elect to distribute some or all of the assets of
the Venture in kind. In this case, the assets to be distributed will be valued
at their Fair Market Value at the time of distribution, the assets will be
treated on books of the Venture as having been sold for an amount equal to their
Fair Market Value, and
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distribution then will proceed as if cash equal to the Fair Market Value of
those assets was distributed. If the Venturers cannot agree on the Fair Market
Value of any such asset, its fair market value will be determined in accordance
with the arbitration formula set forth in Section 14.3.
16.9. Venturers May Bid. Any Venturer will be permitted to bid for any
-----------------
asset of the Venture upon dissolution.
17. Representations and Warranties.
------------------------------
17.1. Mutual Representations. Each Venturer represents and warrants
----------------------
that it has full right and authority to enter into this Agreement without
obtaining any consents or approvals; its execution of this Agreement and the
performance of the terms and conditions hereof will not violate any other
agreement to which it is a party or pursuant to which it is bound; that it has
been represented by counsel of its own choice; and this Agreement is binding
upon it and its execution of this Agreement and its performance of the terms and
conditions of this Agreement are duly authorized.
17.2. PEL and OCC Representations. PRP hereby makes each of the
---------------------------
representations and warranties set forth in Exhibit "G", each of which are
incorporated herein by this reference and shall survive the Closing Date. PRP
confirms its awareness that based on the representations and warranties
contained in Exhibit "G", the Venture will make certain representations and
warranties to AGC in the Operating Lease. Nothing contained in this Section
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17.2 will be deemed to create any third party beneficiary rights in AGC, but in
case of any action by AGC under the Lease, the Venture, and PRP shall have
available, and may assert, any defense or counterclaim available to the Venture.
The representations and warranties referenced in this Section 17.2 shall survive
the Closing only for a period of eighteen (18) months and except to the extent
NGP asserts a claim in writing for breach of such representations and warranties
within such time period, such representations and warranties shall thereafter be
considered void.
17.3. Representations to Protect REIT Status. PRP understands that
--------------------------------------
National Golf Properties, Inc., a Maryland corporation, and the general partner
of NGP ("National Golf"), has qualified as a real estate investment trust (REIT)
under the Code and that it intends to maintain such qualification and that, as a
REIT, National Golf is subject to a number of organizational and operational
requirements. PRP further understands that the representations, warranties and
agreements set forth below are intended to assist National Golf in maintaining
its REIT status and that a violation of such representations, warranties and
agreements could have an adverse impact on National Golf's REIT status.
Accordingly, PRP (on behalf of itself and its Successors) represents, warrants
and agrees as follows:
17.3.(a) It does not and agrees that it will not, at any time, own or
"Constructively Own," as defined in Exhibit "H", any stock of National Golf.
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17.3. (b) If, for any reason, PRP, or any Successor violates the
representation and agreement set forth in Section 17.3(a), then (1) to the
extent permitted by National Golf's Certificate of Incorporation, such
acquisition or ownership of National Golf stock will be void (subject to the
terms and conditions of National Golf's Certificate of Incorporation); and (2)
to the extent (i) such Certificate of Incorporation does not operate so as to
immediately void such acquisition or ownership, and (ii) such acquisition or
ownership would cause National Golf to be viewed as the Constructive Owner of an
"Ownership Interest" (as defined in Exhibit "H") of ten percent or more in any
tenant of National Golf or NGP (in either case, so long as National Golf is the
general partner of NGP), or AGC, then immediately upon such event, the Interest
of such Venturer shall be automatically purchased by PRP or its Successors pro
rata (to the extent that such transfer does not violate Section 17.3(a)) for an
amount equal to the amount that PRP would have received had it exercised its Put
rights pursuant to Article 14; provided that if such transfer does not prevent a
violation of Section 17.3(a), then the ownership interest of such Venturer shall
be automatically purchased by National Golf in exchange for an amount equal to
the amount that such Venturer would have received had it exercised its Put
rights pursuant to Article 14. In addition, such Venturer shall immediately
upon demand pay to the purchaser of the Interest all distributions made by the
Venture to it after the date of such purchase but
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prior to its discovery. In such case, the Managing Venturer shall have the
authority to adjust the Venture's books and records (including amending tax
returns if appropriate) to reflect such purchase and all resulting matters.
18. Reciprocal Indemnities.
----------------------
18.1. PRP's Indemnity. PRP shall indemnify, protect, defend and hold
---------------
harmless the Venture, NGP, and AGC and their respective owners, lessees,
guarantors, officers, directors, partners, employees, and agents from and
against all claims, demands, lawsuits, actions, proceedings, liabilities,
damages, losses, and expenses, including reasonably attorneys' fees
(collectively, "Claims") relating to any breach by PRP of this Agreement;
provided that insofar as such indemnity pertains to a breach of any
representation or warranty set forth in Section 17.2, such indemnity shall
survive the Closing only for a period of eighteen (18) months and except to the
extent NGP asserts a claim in writing for indemnity within such time period, the
indemnity insofar as it relates to such representations and warranties shall
thereafter be considered void. Any claim under this Section 18.1 shall not be
applicable unless the damage resulting therefrom exceeds $25,000. The aggregate
of all such claims shall not exceed $8 million.
18.2. NGP's Indemnity. NGP shall indemnify, protect, defend, and hold
---------------
harmless the Venture, PRP, AGC and their respective owners, lessees, guarantors,
officers, directors,
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partners, employees, and agents from and against all Claims relating to any
breach by NGP of this Agreement.
19. Miscellaneous.
-------------
19.1. Notices. Any notice, payment, demand or communication required
-------
or permitted to be given by any provision of this Agreement will be deemed to
have been delivered and given for all purposes: (a) if delivered personally to
the party or to an officer of the party to whom it is directed; or (b) whether
or not it is actually received, if sent by a recognized overnight courier
service, such as Federal Express, addressed as set forth below or to such other
address as a Venturer may from time to time specify by written notice to each
other Venturer. Any such notice, payment, demand or communication will be
deemed to have been delivered and given on the date delivered, if delivered
personally, or on the date of attempted delivery by overnight courier service.
The following addresses are the current addresses of the Venturers:
If to NGP: National Golf Operating Partnership
c/o National Golf Properties, Inc.
2951 28th Street, Suite 3000
Santa Monica, CA 90405
Attn: Scott Thompson, Esq.
General Counsel
If to PRP: c/o Marvin A. French
Pumpkin Ridge Golf Course
12930 Old Pumpkin Ridge Road
Cornelius, OR 97113
-56-
<PAGE>
With a copy to: Margaret Kushner, Esq.
Stoel Rives LP
900 S.W. Fifth Avenue
Suite 2300
Portland, OR 97204
19.2. Headings. Article and Paragraph headings in this Agreement are
--------
for reference purposes only and do not describe, interpret, define or limit the
scope, extent or intent of this Agreement or any provision hereof.
19.3. Severability. Every provision of this Agreement is intended to
------------
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity will not affect the validity of
the remainder of such term and this Agreement.
19.4. Amendments. All amendments to this Agreement must be in writing
----------
and signed by all Venturers and any other attempted amendment will be null and
void.
19.5. No Waiver. The failure of any Venturer to insist upon strict
---------
performance of any of the terms or conditions of this Agreement or to exercise
any election, right or remedy will not be construed as a waiver or election. No
waiver will be effective unless it is in writing, specifically describes the
act or omission to be waived and is signed by the party charged with the waiver.
No waiver will be deemed to be a waiver of any prior, concurrent or subsequent
act or omission.
19.6. Legal Fees. In any action for breach of, to enforce the
----------
provisions of, or otherwise involving this Agreement, the court or other
authority having jurisdiction in such action
-57-
<PAGE>
shall award a reasonable sum of attorneys' fees and costs to the party in whose
favor judgment is entered. The party in whose favor judgment is entered may, by
its election, submit proof of attorneys' fees and costs as an element of damages
before entry of judgment, or after entry of judgment in any post judgment cost
bill.
19.7. Governing Law. The local, internal laws of Oregon govern the
-------------
validity of the Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties.
19.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all parties hereto had signed the same
document. All counterparts will be construed together and will constitute one
agreement.
19.9. Rights and Remedies Cumulative. All rights and remedies
------------------------------
available to a party hereunder or at law or in equity are cumulative and not
exclusive and may be exercised successively, concurrently or in any order.
19.10. Binding on Successors. Subject to Article 13, each and all of
---------------------
the covenants, terms, provisions and agreements herein contained will be binding
upon and inure to the benefit of the Venturers and their respective Successors.
19.11. Time. Time is of the essence in the performance of the parties'
----
respective obligations under this Agreement.
19.12. Entire Agreement. This Agreement constitutes the entire
----------------
understanding and agreement among the parties with respect
-58-
<PAGE>
to the subject matter hereof, and there are no agreements, understandings,
restrictions, representations or warranties among the parties other than those
set forth herein or herein provided for.
19.13. Further Assurances. Each Venturer agrees to cooperate with the
------------------
other Venturers and to perform any further acts and execute and deliver any
further documents and agreements which may be reasonably necessary to carry out
the provisions of this Agreement and the purposes of the Venture.
19.14. Masculine Includes Feminine, etc.. Where the context so
---------------------------------
requires, the use of the masculine gender includes the feminine and neuter
genders and the singular includes the plural, and vice versa, and the word
"person" includes any individual, corporation, association, partnership or other
entity.
19.15. Exhibits. All Exhibits hereto are incorporated herein by
--------
reference as though set forth in full.
19.16. Confidentiality. The parties shall keep confidential the
---------------
existence and terms of this Agreement, except as to their employees,
consultants, attorneys, accountants and other agents that may be involved in
conducting the due diligence related to the transactions contemplated by this
Agreement. Upon the Closing, NGP shall be permitted to make public
announcements and disclosures regarding the terms of the transaction except that
the initial press release will be subject to the reasonable prior approval of
OCC and PEL.
-59-
<PAGE>
19.17. Obligations. The obligations, representations and warranties of
-----------
OCC and PEL hereunder or under any Exhibit shall constitute their several
obligations, representations and warranties. In furtherance and not in
limitation of the foregoing, in any instance in which PRP has liability under
this Agreement and the assets of PRP are not sufficient to discharge such
liability, any recourse against OCC and PEL with respect to such liability shall
be several and not joint, in the case of each in proportion to the then-
interests of OCC and PEL in PRP.
IN WITNESS WHEREOF, this Agreement has been executed as of the date set
forth in Article 1.
"NGP"
NATIONAL GOLF OPERATING PARTNERSHIP L.P..
a Delaware limited partnership
By: NATIONAL GOLF PROPERTIES, INC.,
a Maryland corporation
By: /s/ Paul Major
----------------------------
Print Name: Paul Major
Title: Senior Vice President
"PRP"
PUMPKIN RIDGE PARTNERS,
an Oregon Partnership
By: OREGON CENTRAL CORPORATION,
a Delaware corporation
By: /s/ Kumiko Hatori
-----------------------------
Print Name: Kumiko Hatori
Title: Vice President
-60-
<PAGE>
EXHIBIT 10.3
================================================================================
Pumpkin Ridge Golf Club
Cornelius
Washington County
Oregon
LEASE
PUMPKIN RIDGE JOINT VENTURE
Landlord
and
AMERICAN GOLF CORPORATION
Tenant
Dated as of September 8, 1997
================================================================================
<PAGE>
Pumpkin Ridge Golf Club
Cornelius
Washington County
Oregon
LEASE
-----
THIS LEASE ("Lease"), dated for reference purposes only September 8,
1997, is entered into by and between PUMPKIN RIDGE JOINT VENTURE, an Oregon
general partnership ("Landlord") and AMERICAN GOLF CORPORATION, a California
corporation ("Tenant"). This Lease consists of the Basic Lease Provisions, the
Detailed Lease Provisions and Exhibits A through L, all of which are
--------------------
incorporated herein by this reference. Capitalized terms used herein have the
meanings assigned to such terms in Exhibit A.
---------
BASIC LEASE PROVISIONS
1. Facility: Means the Leased Property consisting of the following
improvements located on the Lend: (i) an 18-hole private golf club known as
"Pumpkin Ridge Witch Hollow," with a clubhouse and related facilities
("Witch Hollow"); (ii) an 18-hole daily fee golf course known as "Pumpkin
----------------
Ridge Ghost Creek," with a clubhouse and related facilities ("Ghost
------
Creek"); and (iii) driving range servicing both Witch Hollow and Ghost
Creek.
2. Commencement Date: Means September __, 1997.
3. Initial Term: fifteen (15) years commencing on the Commencement Date.
4. Extended Terms: Two (2) five-year terms (See Section 2.2 of the Detailed
-----------
Lease Provisions) (each, an "Extended Term").
---------------
5. Initial Base Rent: Means $1,560,000.
6. Fiscal Year: Means the 12-month period from January 1 through December 31
of each year of the Term, or the applicable portions of the first and last
Fiscal Years.
7. Annual Base Rent: Means, with respect to the Fiscal Year commencing on the
Commencement Date and the Fiscal Year commencing on January 1, 1998, the
Initial Base Rent. On January 1, 1999, and on January 1 of each following
Fiscal Year through and including January 1, 2003, the Annual Base Rent
shall be equal to the Annual Base Rent applicable to the immediately
preceding Fiscal Year multiplied by the annual percentage increase in the
Consumer Price Index ("CPI") from the immediately preceding Fiscal Year;
provided, however, the CPI increase in Annual Base Rent for any Fiscal Year
pursuant to the terms of this Section 7 shall not exceed five percent (5%).
---------
After the January 1, 2003 CPI adjustment, the Annual Base Rent shall
remain unchanged, subject to Section 2.2 of the Detailed Lease Provisions.
-----------
(i)
<PAGE>
8. Applicable Percentage:
With respect to Course Revenue, means:
For the first Fiscal Year (1997): 26%
For the second Fiscal Year (1998): 26%
For the third Fiscal Year (1999): 27%
For the fourth Fiscal Year (2000): 28%
For the fifth Fiscal Year (2001): 28.5%
For the sixth Fiscal Year (2002)
and each Fiscal Year thereafter: 29%
With respect to Other Revenue, means: 5 % for each Fiscal Year
throughout the Term.
With respect to Annual Excess Initiation Fee Revenue (as defined in
Section 17 of these Basic Lease Provisions), means: 70% for each
----------
Fiscal Year throughout the Term.
With respect to Cumulative Excess Initiation Fee Revenue (as defined
in Section 17 of these Basic Lease Provisions), means: 70% with
----------
respect to the Cumulative Period (as defined in Section 17 of these
----------
Basic Lease Provisions).
9. Additional Rent: Means the amount, if any, by which (a) the sum of:
(i) all Course Revenue for any Fiscal Year multiplied by the
Applicable Percentage with respect to Course Revenue; plus
(ii) all Other Revenue for any Fiscal Year multiplied by the
Applicable Percentage with respect to Other Revenue; plus
(iii) all Annual Excess Initiation Fee Revenue for any Fiscal Year
multiplied by the Applicable Percentage with respect to Annual Excess
Initiation Fee Revenue; plus
(iv) all Cumulative Excess Initiation Fee Revenue for the Cumulative
Period multiplied by the Applicable Percentage with respect to
Cumulative Excess Initiation Fee Revenue less all amounts calculated
----
pursuant to Section 9 (iii) above during the Cumulative Period with
---------------
respect to Annual Excess Initiation Fee Revenue;
exceeds (b) the Annual Base Rent for such Fiscal Year. (See Section 3.3 of
-----------
the Detailed Lease Provisions.) The calculation of Additional Rent with
respect to Annual Excess Initiation Fee Revenue and Cumulative Excess
Initiation Fee Revenue shall be reconciled in accordance with Section 3.3.3
-------------
of the Detailed Lease Provisions.
(ii)
<PAGE>
10. Address for Payments:
Landlord:
Pumpkin Ridge Joint Venture
c/o National Golf Properties, Inc.
2951 28th Street, Suite 3001
Santa Monica, California 90405
(See Section 3.1 of the Detailed Lease Provisions.)
-----------
11. Addresses for Notices:
Tenant:
American Golf Corporation
2951 28th Street, Suite 3000
Santa Monica, California 90405
Attn: Theodore F. Kahan
General Counsel
Landlord:
Pumpkin Ridge Joint Venture
c/o National Golf Properties, Inc.
2951 28th Street, Suite 3001
Santa Monica, California 90405
Attn: Scott S. Thompson
General Counsel
(See Section 25.8 of the Detailed Lease Provisions.)
------------
12. Title Commitment: Shall mean that certain Title Insurance Commitment
No.828648 issued by First American Title Insurance Company in connection
with the transfer of the Leased Property from Pumpkin Ridge Partners, an
Oregon partnership ("Pumpkin Ridge I") to Landlord pursuant to the Joint
-------- ----- -
Venture Agreement.
13. Tenant shall maintain the Facility in accordance with the Maintenance
Standards set forth on Exhibit D attached hereto ("Maintenance Standards")
--------- -----------------------
and shall operate and manage the Property in accordance with the Operating
Standards set forth on Exhibit E attached hereto ("Operating Standards").
--------- ----------------------
Tenant shall continue to operate Witch Hollow as a premium private golf
club and Ghost Creek as a high-end daily fee course; provided, however,
Tenant may convert Ghost Creek to a private golf club subject to Landlord's
prior approval of such conversion as required under the Operating
Standards. In addition, if the United States Golf Association ("U.S.G.A.")
----------
or any other similar association governing championship golf tournaments
elects to hold a Special Event (as defined in Section 16 below) at the
----------
Facility, Tenant shall prepare, improve, maintain and
(iii)
<PAGE>
operate the Facility in accordance with the terms and conditions of the
Special Event Agreement (as defined in Section 16 below).
----------
14. Pursuant to a customary assignment and assumption instrument to be executed
as of the Commencement Date, Tenant shall assume and satisfy the
obligations under the contracts listed on Exhibit G attached hereto;
---------
provided that such assumption shall not apply to any obligations or
liabilities under such Contracts arising prior to the Commencement Date.
15. Intentionallv Omitted.
---------------------
16. Pursuant to a separate agreement between Landlord and Tenant ("Special
Events Agreement"), Tenant shall make the Facility available from time to
time for hosting one or more events ("Special Events") sponsored by the
----------------
United States Golf Association ("USGA"). The Special Events Agreement sets
forth the allocation between Landlord and Tenant of the fees and costs to
be paid for holding any Special Event at the Facility ("Special Event Costs
--------------------
and Fees"). The Special Event Costs and Fees shall not be included within
----------
the definitions of "Course Revenue," "Other Revenue, " "Annual Excess
---------------- ------------- -------------
Initiation Fee Revenue," "Cumulative Excess Initiation Fee Revenue" or
---------- ------------- ----------------- ---------- -----------
"Total Revenue" as such terms are defined in this Lease.
--------------
17. Exhibit I attached hereto sets forth annual benchmarks of initiation fees
---------
expected to be paid to Tenant with respect to the ordinary sale of
memberships at Witch Hollow during each year of the Term ("Initiation Fee
---------------
Benchmarks"). If and to the extent Tenant receives initiation fees on an
------------
annual basis from the sale of memberships at Witch Hollow in excess of 125%
of the Initiation Fee Benchmarks ("Annual Excess Initiation Fee Revenue"),
--------------------------------------
Tenant shall pay Additional Rent with respect to the Annual Excess
Initiation Fee Revenue in accordance with Section 9 of these Basic Lease
---------
Provisions. Exhibit I also sets forth a cumulative benchmark ("Cumulative
--------- -----------
Benchmark") of initiation fees expected to be paid to Tenant with respect
----------
to the ordinary sale of memberships at Witch Hollow during the first five
Fiscal Years of the Term ("Cumulative Period"). If and to the extent Tenant
--------------------
receives initiation fees on an aggregate basis from the sale of memberships
at Witch Hollow during the Cumulative Period in excess of 125 % of the
Cumulative Benchmark ("Cumulative Excess Initiation Fee Revenue"), Tenant
-------------------------------------------
shall pay Additional Rent with respect to such Cumulative Excess Initiation
Fee Revenue in accordance with Section 9 of these Basic Lease Provisions.
---------
The payment of Additional Rent with respect to Annual Excess Initiation Fee
Revenue and Cumulative Excess Initiation Fee Revenue shall be subject to
reconciliation pursuant to Section 3.3.3 of the Detailed Lease Provisions.
-------------
Any fees, charges or other amounts paid to Tenant with respect to the sale
of annual, monthly or weekly memberships at Ghost Creek shall be included
within the calculation of Course Revenue and shall not be included within
the calculation of Annual Excess Initiation Fee Revenue or Cumulative
Excess Initiation Fee Revenue. In the event that Landlord and Tenant agree
to convert Ghost Creek to a fully private club, Landlord and Tenant shall
agree at such time as to the manner in which initiation fees from the sale
of memberships at Ghost Creek shall be treated and what percentage rent
shall apply. For purposes of providing an example of the rent calculations
to be made pursuant to this Section 17 with respect to memberships at Witch
----------
Hollow, the following assumptions will be made: (i) the Initiation Fee
Benchmark for
(iv)
<PAGE>
1999 is $1,000,000; (ii) the Cumulative Benchmark is $5,000,000; (iii)
Tenant receives $1,500,000 of initiation fees during 1999; (iv) Tenant
receives $7,000,000 of initiation fees during the Cumulative Period; (v)
the Applicable Percentage with respect to the Annual Excess Initiation Fee
Revenue is 70%; (vi) the Applicable Percentage with respect to the
Cumulative Excess Initiation Fee is 70%; and (vii) the Additional Rent paid
by Tenant with respect to the Annual Excess Initiation Fee Revenue actually
received during the Cumulative Period is $350,000. Using these assumptions,
the Annual Excess Initiation Fee Revenue for 1999 would be $250,000
($1,500,000 minus 125% of $1,000,000) and the Additional Rent to be paid
by Tenant with respect to such Annual Excess Initiation Fee Revenue would
be $175,000 (70% of $250,000). The Cumulative Excess Initiation Fee Revenue
would be $750,000 ($7,000,000 minus 125% of $5,000,000) and the Additional
Rent owing with respect to the Cumulative Excess Initiation Fee Revenue
would be $562,000 (70% of $750,000). In accordance with Section 3.3.3 of
-------------
the Detailed Lease Provisions, Tenant would pay to Landlord a deficiency
amount of $212,500 ($562,500 minus $350,000). If, in the above example, the
Additional Rent paid by Tenant with respect to the Annual Excess Initiation
Fee Revenue received during the Cumulative Period is $700,000 (instead of
$350,000 as set forth above), Landlord would remit to Tenant the amount of
$137,500 ($700,000 minus $562,500).
18. Landlord hereby makes the representations and warranties ("Landlord's
Representations and Warranties") to Tenant set forth in Exhibit J attached
---------
hereto. Landlord's Representations and Warranties shall survive the
Commencement Date only for a period of eighteen (18) months and except to
the extent Tenant asserts a claim in writing for breach of such
representations and warranties within such time period, such
representations and warranties shall be considered void after eighteen (18)
months. Any Tenant claim with respect to Landlord's Representations and
Warranties shall not be applicable unless the damage resulting therefrom
exceeds $25,000. The aggregate of all such claims shall not exceed $8
million.
19. Tenant makes the following representations and warranties to Landlord:
(a) Tenant is presently in the process of forming a new division to focus
on the acquisition and operation of "high-end" golf facilities. AGC
intends to develop and market such new division under the name of the
"Tradition" or similar name and dedicate the resources it deems
appropriate to such division to position it as an operator of high-end
golf facilities. Tenant initially intends to include the properties
listed in Exhibit K in the Tradition or other division or department
---------
of Tenant involved in the operation of high end golf facilities. In
any event, Tenant will at all times maintain the Facility according to
standards customary for "high end" golf facilities.
(b) Upon the Commencement Date, Tenant will offer at will employment to
all existing employees of the Facility, provided that each such
employee must meet Tenant's customary terms and conditions of
employment (e.g., drug testing, security screening, background
investigation, etc.).
(v)
<PAGE>
20. [INTENTIONALLY DELETED].
21. Landlord agrees to sell to Tenant, and Tenant agrees to purchase from
Landlord all Inventory located at the Facility on the Commencement Date for
a price equal to the lower of cost or fair market value.
22. Tenant shall design, develop and construct the "Initial Capital
Improvements" (as defined in Exhibit L of this Lease). Tenant shall submit
---------
to Landlord a budget to fund such design, development and construction for
Landlord's prior approval thereof (the "Budget"); provided, however, the
Budget shall not exceed the amounts set forth in Exhibit L and the Budget
---------
shall not include any overhead fees, general and administrative costs, nor
any other similar fees, costs or charges payable to Tenant or any of its
Affiliates in connection with the design, development or construction of
the Initial Capital Improvements. Upon Tenant submitting to Landlord
invoices, receipts or other documents evidencing costs and expenditures in
accordance with the Budget and accompanied by appropriate waivers or
releases of mechanics' and materialmen's liens, Landlord shall pay to
Tenant the amount of such costs and expenditures. As of the date of such
payment by Landlord, the Annual Base Rent then in effect shall be increased
by an amount equal to nine and three quarters percent (9.75%) of the
amount of such payment by Landlord, and Landlord shall deliver to Tenant
written notice of this increased amount of the Annual Base Rent. Any
additional Base Rent owing for the remainder of the month in which the
Annual Base Rent was increased as provided above shall be payable with the
next monthly installment of Base Rent. To the extent not inconsistent with
this Section 22 of the Basic lease Provisions, the construction of such
----------
Initial Capital Improvements shall be governed by the provisions of
Sections 10.3 and 10.4 of the Detailed Lease Provisions. If Tenant desires
----------------------
either to eliminate any projects included in the Initial Capital
Improvements or to add new projects to the Initial Capital Improvements,
Landlord's prior written approval shall be required, which approval shall
not be unreasonably withheld provided that such change will not cause the
Budget to exceed the total amount set forth in Exhibit L attached hereto.
---------
Any changes or additions to the Initial Capital Improvements which, in the
aggregate, cause the Budget for the Initial Capital Improvements to exceed
the total amount set forth in Exhibit L attached hereto shall be subject to
---------
Landlord's approval. Notwithstanding the foregoing, Landlord's approval
shall not be required to re-allocate any cost savings from any one project
or line item of the Initial Capital Improvements to another project or line
item of the Initial Capital Improvements where there may be cost overruns,
provided that the total amount set forth on Exhibit L attached hereto shall
---------
not be exceeded and provided that Tenant gives landlord written notice of
such re-allocation.
23. Landlord and Tenant acknowledge and agree that as part of the approval of
the development project ("Project") encompassing the Property, Washington
---------
County or agency thereof (the "Agency") issued a Land Use Decision
--------
approving the Project ("CUP") that requires a review in 1999, at which time
-----
the Agency may impose additional conditions ("Conditions") with respect to
------------
the approval of the Project. Landlord and Tenant shall in good faith
jointly negotiate with the Agency in order to satisfy, minimize or
eliminate any Conditions in a manner reasonably acceptable to Landlord and
Tenant.
(vi)
<PAGE>
Landlord agrees that if the Condition requires additional improvements at
the Property or other expenditures, the costs related to such additional
improvements or expenditures shall be funded by Landlord. As of the date
of such payments by Landlord, the Annual Base Rent then in effect shall be
increased by an amount equal to nine and three quarters percent (9.75%) of
the amount of such payment by Landlord, and Landlord shall deliver to
Tenant written notice of this increased amount of the Annual Base Rent. Any
additional Base Rent owing on the remainder of the month in which the
Annual Base Rent was increased as provided above shall be payable with the
next monthly installment of Base Rent. To the extent not inconsistent with
this Section 23 of the Basic Lease Provisions, the construction of such
----------
improvements shall be governed by the provisions of Sections 10.3 and 10.4
----------------------
of the Detailed lease Provisions. In addition, if the funding of such
improvements exceeds $25,000, Landlord and Tenant shall in good faith re-
negotiate the Applicable Percentages pursuant to Section 8 of the Detailed
---------
Lease Provisions in order to reasonably allocate between Tenant and
Landlord the economic impact of funding such improvements.
[Remainder of Page Intentionally Left Blank)
(vii)
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as
of the date first above written.
PUMPKIN RIDGE JOINT VENTURE, AMERICAN GOLF CORPORATION,
an Oregon general partnership a California corporation
By: NATIONAL GOLF OPERATING
PARTNERSHIP, L.P.,
a Delaware limited partnership
Its Managing General Partner
By: NATIONAL GOLF PROPERTIES INC.,
a Maryland corporation
Its General Partner
By: /s/ Scott S. Thompson By: /s/ Theodore F. Kahan
---------------------- ----------------------
Its: General Counsel Its: Vice President/General Counsel
---------------------- ------------------------------
"Landlord" "Tenant"
LIST OF ATTACHMENTS AND EXHIBITS:
- --------------------------------
DETAILED LEASE PROVISIONS
Exhibit A Defined Terms; Interpretation
Exhibit B Legal Description of the Land
Exhibit C Other Leased Properties
Exhibit D Maintenance Standards
Exhibit E Operating Standards
Exhibit F Landlord's Personal Property
Exhibit G Schedule of Contracts
Exhibit H Intentionally Omitted
Exhibit I Initiation Fee Benchmarks
Exhibit J Landlord's Representations and Warranties
(viii)
<PAGE>
Exhibit K Tradition Properties
Exhibit L Initial Capital Improvements
(ix)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
ARTICLE 1 - LEASED PROPERTY............................................. 1
ARTICLE 2 - TERM........................................................ 1
2.1 Term......................................................... 1
2.2 Extended Term................................................ 1
ARTICLE 3 - RENT........................................................ 2
3.1 Rent......................................................... 2
3.2 Base Rent.................................................... 2
3.3 Additional Rent.............................................. 2
3.4 Additional Charges........................................... 4
3.5 Late Payment of Rent......................................... 4
3.6 Net Lease.................................................... 4
3.7 Marketing Programs........................................... 4
3.8 Income/Expense Prorations.................................... 5
ARTICLE 4 - IMPOSITIONS................................................. 5
4.1 Payment of Impositions....................................... 5
4.2 Information and Reporting.................................... 5
4.3 Assessment Challenges........................................ 5
4.4 Prorations................................................... 5
4.5 Refunds...................................................... 6
4.6 Utility Charges.............................................. 6
4.7 Reassessments Upon Transfer.................................. 6
4.8 Assessment Districts......................................... 6
ARTICLE 5 - TENANT WAIVERS.............................................. 6
5.1 No Termination, Abatement, Etc............................... 6
5.2 Condition of the Leased Property............................. 7
ARTICLE 6 - OWNERSHIP OF PROPERTY....................................... 8
6.1 Leased Property.............................................. 8
6.2 Landlord's Personal Property................................. 8
6.3 Tenant's Personal Property................................... 8
6.4 Purchase of Tenant's Personal Property....................... 8
6.5 Removal of Personal Property................................. 9
6.6 Landlord's Waivers........................................... 9
6.7 Water Rights................................................. 10
ARTICLE 7 - USE OF LEASED PROPERTY...................................... 10
7.1 Use.......................................................... 10
7.2 Specific Prohibited Uses.. .................................. 10
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
7.3 Membership Matters, Fees and Charges........................ 11
7.4 Landlord to Grant Easements, Etc............................ 11
ARTICLE 8 - HAZARDOUS MATERIALS
8.1 Remediation................................................. 12
8.2 Tenant's Indemnification of Landlord........................ 12
8.3 Survival of Indemnification Obligations..................... 12
8.4 Environmental Violations at Expiration or
Termination of Lease...................................... 12
8.5 Landlord's Indemnification of Tenant........................ 13
ARTICLE 9 - MAINTENANCE AND REPAIR..................................... 13
9.1 Tenant's Sole Obligation.................................... 13
9.2 Waiver of Statutory Obligations............................. 14
9.3 Mechanics' Liens............................................ 14
9.4 Surrender of Leased Property................................ 14
ARTICLE 10 - TENANT'S IMPROVEMENTS...................................... 14
10.1 Tenant's Right to Construct................................. 14
10.2 Scope of Right.............................................. 15
10.3 Cooperation of Landlord..................................... 15
10.4 Commencement of Construction................................ 16
10.5 Rights in Tenant Improvements............................... 16
ARTICLE 11 - LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS............... 16
11.1 Liens....................................................... 16
11.2 Encroachments and Other Title Matters....................... 17
ARTICLE 12- PERMITTED CONTESTS.......................................... 18
ARTICLE 13 - INSURANCE.................................................. 19
13.1 General Insurance Requirements.............................. 19
13.2 Replacement Cost............................................ 20
13.3 Waiver of Subrogation....................................... 20
13.4 Form Satisfactory, Etc...................................... 20
13.5 Change in Limits............................................ 21
13.6 Blanket Policy.............................................. 21
ARTICLE 14 - APPLICATION OF INSURANCE PROCEEDS.......................... 21
14.1 Insurance Proceeds.......................................... 21
14.2 Reconstruction Covered by Insurance......................... 22
14.3 Reconstruction Not Covered by Insurance..................... 24
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
14.4 No Abatement of Rent........................................ 24
14.5 Waiver...................................................... 25
14.6 Damage Near End of Term..................................... 25
ARTICLE 15 - CONDEMNATION............................................... 25
15.1 Total Taking................................................ 25
15.2 Partial Taking.............................................. 25
15.3 Restoration................................................. 25
15.4 Award-Distribution.......................................... 25
15.5 Temporary Taking............................................ 26
ARTICLE 16 - EVENTS OF DEFAULT.......................................... 26
16.1 Events of Default........................................... 26
16.2 Payment of Costs............................................ 28
16.3 Exceptions.................................................. 28
16.4 Certain Remedies............................................ 28
16.5 Damages..................................................... 28
16.6 Additional Remedies......................................... 29
16.7 Appointment of Receiver..................................... 29
16.8 Waiver...................................................... 29
16.9 Application of Funds........................................ 30
16.10 Impounds.................................................... 30
ARTICLE 17 - LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.................. 30
ARTICLE 18 - LEGAL REQUIREMENTS......................................... 30
ARTICLE 19 - HOLDING OVER............................................... 31
ARTICLE 20 - RISK OF LOSS............................................... 31
20.1 Risk of Loss................................................ 31
20.2 Unavoidable Events.......................................... 31
ARTICLE 21 - INDEMNIFICATION............................................ 32
21.1 Tenant's Indemnification of Landlord........................ 32
21.2 Landlord's Indemnification of Tenant........................ 33
21.3 Mechanics of Indemnification................................ 33
21.4 Survival of Indemnification Obligations..................... 33
21.5 Non-Applicability........................................... 33
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
ARTICLE 22 - SUBLETTING AND ASSIGNMENT.................................. 33
22.1 Prohibition Against Subletting and Assignment............... 33
22.2 Changes of Control.......................................... 34
22.3 Subleases................................................... 35
22.4 Assignment.................................................. 36
22.5 REIT Limitations............................................ 36
ARTICLE 23 - OFFICER'S CERTIFICATES AND OTHER STATEMENTS................ 36
23.1 Officer's Certificates...................................... 36
23.2 Annual Financial Statements of Tenant....................... 37
23.3 Environmental Statements.................................... 37
ARTICLE 24 - LANDLORD MORTGAGES......................................... 38
24.1 Landlord May Grant Liens.................................... 38
24.2 Tenant's Non-Disturbance Rights............................. 38
24.3 Breach by Landlord.......................................... 38
24.4 Facility Mortgage Protection................................ 38
ARTICLE 25 - MISCELLANEOUS.............................................. 38
25.1 Landlord's Right to Inspect................................. 38
25.2 No Waiver................................................... 39
25.3 Remedies Cumulative......................................... 39
25.4 Acceptance of Surrender..................................... 39
25.5 No Merger of Title.......................................... 39
25.6 Conveyance by Landlord...................................... 39
25.7 Quiet Enjoyment............................................. 39
25.8 Notices..................................................... 39
25.9 Survival of Claims.......................................... 40
25.10 Invalidity of Terms or Provisions........................... 40
25.11 Prohibition Against Usury................................... 40
25.12 Amendments to Lease......................................... 40
25.13 Successors and Assigns...................................... 40
25.14 Titles...................................................... 40
25.15 Governing Law............................................... 40
25.16 Memorandum of Lease......................................... 40
25.17 Attorneys' Fees............................................. 40
25.18 Non-Recourse as to Landlord................................. 40
25.19 No Relationship............................................. 41
25.20 Signs; Reletting............................................ 41
25.21 Landlord's Consent.......................................... 41
25.22 Standard for Reasonable Consent............................. 41
</TABLE>
iv
<PAGE>
DETAILED LEASE PROVISIONS
ARTICLE 1- LEASED PROPERTY
--------------------------
Upon and subject to the terms and conditions set forth in this Lease,
Landlord leases to Tenant and Tenant rents from Landlord all of Landlord's
rights and interest in and to the following real property, improvements and
related rights (collectively the "Leased Property"):
------ --------
(a) the land described in Exhibit B attached hereto (collectively,
---------
the "Land");
----
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas, roadways, cart paths, bridges, lakes,
irrigation systems, and course markers presently situated upon the
Land, but not including any Tenant Improvements (collectively, the
-----------------
"Leased Improvements");
---------------------
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements (collectively, the "Related Rights"); and
----------------
(d) all personal property, if any, owned by Landlord and located on
the Leased Property, which personal property is described in Exhibit F
---------
attached hereto ("Landlord's Personal Property").
------------------------------
ARTICLE 2 - TERM
----------------
2.1 Term. The Term of this Lease shall commence on the Commencement
----
Date.
2.2 Extended Term. Landlord grants to Tenant the right to extend the
-------------
Term of this Lease for the Extended Terms provided for in Section 4 of the Basic
---------
Lease Provisions commencing upon the expiration of the Initial Term or the
applicable Extended Term. Tenant may exercise such right solely by giving
written notice to Landlord of such extension at least 270 days prior to the
termination of the then current Term. The exercise of such right shall be valid
only if at the time of the giving of such notice and at the time of the
commencement of the applicable Extended Term no Event of Default shall have
occurred and be continuing. During each Extended Term, all of the terms and
conditions of this Lease shall continue in full force and effect, as the same
may be amended, supplemented or modified; provided, however, the Annual Base
Rent during each Extended Term shall be increased (but not decreased) at the
commencement of each Extended Term to an amount equal to eighty percent (80%) of
the following sum: (a) the aggregate Base Rent plus the Additional Rent payable
under this Lease for the twenty-four (24) complete calendar months immediately
prior to the commencement of the respective Extended Term, divided by (b) two
(2).
1
<PAGE>
ARTICLE 3 - RENT
----------------
3.1 Rent. Tenant will pay to Landlord in lawful money of the United
----
States of America the Base Rent and Additional Rent during the Term. Payments of
Base Rent and Additional Rent shall be paid at Landlord's address set forth in
the Basic Lease Provisions or at such other place or to such other Person as
Landlord from time to time may designate in writing. If any payment owing
hereunder shall otherwise be due on a day that is not a Business Day, such
payment shall be due on the next succeeding Business Day.
3.2 Base Rent. Tenant shall pay Base Rent to Landlord in advance on
---------
the first day of each calendar month; provided however, that the first monthly
----------------
installment shall be payable on the Commencement Date and the first and last
month's payments shall be prorated as to any partial month.
3.3 Additional Rent. In addition to the Base Rent, Tenant shall pay
---------------
to Landlord Additional Rent in quarterly installments as provided in Section
-------
3.3.1.
- -----
3.3.1 Quarterly Calculation and Payment of Additional Rent.
----------------------------------------------------
Tenant shall calculate and pay Additional Rent for each Fiscal Quarter. The
amount of the Additional Rent for the Second, Third and Fourth Fiscal
Quarters shall account for any interim reconciliations if the parties elect
to make such reconciliations made with respect to prior Fiscal Quarters in
such Fiscal Year as certified by Tenant to Landlord as provided by this
Section 3.3.1, but subject to a final reconciliation as provided by Section
------------- -------
3.3.2. Such Additional Rent shall be paid to Landlord, together with an
-----
Officer's Certificate setting forth the calculation thereof, within 30 days
after the end of each Fiscal Quarter.
3.3.2 Annual Reconciliation. Within 60 days after the end of
---------------------
each Fiscal Year, or after the expiration or termination of the Lease,
Tenant shall deliver to Landlord an Officer's Certificate setting forth (i)
the Course Revenue, Other Revenue and Annual Excess Initiation Fee Revenue
for the Fiscal Year just ended, and (ii) a comparison of the amount of
Additional Rent actually paid during such Fiscal Year versus the amount of
Additional Rent actually owing on the basis of the annual calculation of
the Course Revenue, Other Revenue and Annual Excess Initiation Fee Revenue.
If the Additional Rent for such Fiscal Year exceeds the sum of the
quarterly payments previously paid by Tenant, Tenant shall pay such
deficiency to Landlord along with such Officer's Certificate. If the
Additional Rent for such Fiscal Year is less than the amount previously
paid by Tenant, Landlord shall, at Landlord's option, either (i) remit to
Tenant its check in an amount equal to such difference, or (ii) grant
Tenant a credit against the payment of Additional Rent next coming due. The
amount of the reconciliation payment, whether in favor of Landlord or
Tenant, shall bear interest at a rate equal to the rate payable on 90-day
U.S. Treasury Bills as of January 1 of the year following the close of such
Fiscal Year until the amount of such difference shall be paid or otherwise
discharged.
3.3.3 Cumulative Reconciliation. In addition to the annual
-------------------------
reconciliation pursuant to Section 3.3.2, within 60 days after the
-------------
end of the Cumulative Period, Tenant
2
<PAGE>
shall deliver to Landlord an Officer's Certificate setting forth (i) the
Cumulative Excess Initiation Fee Revenue and (ii) a comparison of the
amount of Additional Rent actually paid with respect to the Annual Excess
Initiation Fee Revenue during the Cumulative Period versus the amount of
Additional Rent owing with respect to the Cumulative Excess Initiation Fee
Revenue. If such Additional Rent owing for the Cumulative Period exceeds
the sum of the annual payments previously paid by Tenant with respect to
the Annual Excess Initiation Fee Revenue, Tenant shall pay such deficiency
to Landlord along with such Officer's Certificate. If such Additional Rent
owing for such Cumulative Period is less than the annual amounts previously
paid by Tenant with respect to the Annual Excess Initiation Fee Revenue,
Landlord shall remit to Tenant an amount equal to such difference. The
amount of the reconciliation payment, whether in favor of Landlord or
Tenant, shall bear interest at a rate equal to the rate payable on 90-day
U.S. Treasury Bills as of January 1 of the year following the close of such
Fiscal Year until the amount of such difference shall be paid or otherwise
discharged.
3.3.4 Record-keeping. Tenant shall utilize an accounting system
--------------
for the Leased Property in accordance with its usual and customary
practices and in accordance with cash basis accounting principles (applied
on a basis consistent with the Other Leased Properties) which will
accurately record all Course Revenue, Other Revenue, Annual Excess
Initiation Fee Revenue and Cumulative Excess Initiation Fee Revenue. Tenant
shall retain reasonably adequate records for each Fiscal Year conforming to
such accounting system until at least five years after the expiration of
such Fiscal Year (and in any event until the reconciliation described in
Section 3.3.2 above for such Fiscal Year has been made).
-------------
3.3.5 Audits. Landlord, at its own expense except as provided
------
hereinbelow, shall have the right from time to time directly or through its
accountants to audit the information set forth in the Officer's Certificate
referred to in Sections 3.3.2 and 3.3.3 and in connection with such audits
-------------- -----
to examine Tenant's books and records with respect thereto (including
supporting data, sales tax returns and Tenant's work papers). If any such
audit discloses a deficiency in the payment of Additional Rent, Tenant
shall forthwith pay to Landlord the amount of the deficiency, as finally
agreed or determined, together with interest at the Overdue Rate from the
date when said payment should have been made to the date of payment
thereof; provided however, that as to any audit that is commenced more than
----------------
12 months after the date Course Revenue, Other Revenue, Annual Excess
Initiation Fee Revenue or Cumulative Excess Initiation Fee Revenue is
reported by Tenant to Landlord, the deficiency, if any, with respect to
such Course Revenue, Other Revenue, Annual Excess Initiation Fee Revenue or
Cumulative Excess Initiation Fee Revenue shall bear interest as permitted
herein only from the date such determination of deficiency is made unless
such deficiency is the result of gross negligence or willful misconduct on
the part of Tenant. If any such audit discloses that the Course Revenue,
Other Revenue, Annual Excess Initiation Fee Revenue or Cumulative Excess
Initiation Fee Revenue actually received by Tenant for any Fiscal Year
exceeds the Course Revenue, Other Revenue, Annual Excess Initiation Fee
Revenue or Cumulative Excess Initiation Fee Revenue reported by Tenant by
more than five percent, Tenant shall pay the reasonable cost of such
audit and examination.
3
<PAGE>
3.4 Additional Charges. In addition to the Base Rent and Additional
------------------
Rent, (1) Tenant shall also pay and discharge when due and payable all other
amounts, liabilities, obligations and Impositions which Tenant assumes or agrees
to pay under this Lease, and (2) in the event of any failure on the part of
Tenant to pay any of those items referred to in clause (1) above, Tenant shall
also pay and discharge every fine, penalty, interest and cost which may be added
for non-payment or late payment of such items (the items referred to in clauses
(1) and (2) above being referred to herein collectively as the "Additional
----------
Charges"). Except as otherwise provided in this Lease, all Additional Charges
- -------
shall be due and payable 30 days after either Landlord or the applicable third
party who may be billing Tenant therefor shall deliver an invoice to Tenant
therefor. To the extent that Tenant pays any Additional Charges to Landlord
pursuant to any requirement of this Lease, Tenant shall be relieved of its
obligation to pay such Additional Charges to the entity to which they would
otherwise be due.
3.5 Late Payment of Rent. Tenant hereby acknowledges that late
--------------------
payment by Tenant to Landlord of Base Rent, Additional Rent or Additional
Charges will cause Landlord to incur costs not contemplated under the terms of
this Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Such costs may include processing and accounting charges
and late charges which may be imposed on Landlord by the terms of any mortgage
or deed of trust covering the Leased Property and other expenses of a similar or
dissimilar nature. Accordingly, if any installment of Base Rent, Additional Rent
or Additional Charges (but only as to those Additional Charges which are payable
directly to Landlord) shall not be paid within five Business Days after its due
date, Tenant will pay Landlord on demand, as Additional Charges, a late charge
equal to five percent of such installment. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. In addition, if any installment of
Base Rent, Additional Rent or Additional Charges (but only as to those
Additional Charges which are payable directly to Landlord) shall not be paid on
its due date, the amount unpaid shall bear interest, from the due date of such
installment to the date of payment thereof, computed at the Overdue Rate on the
amount of such installment, and Tenant will pay such interest to Landlord on
demand, as Additional Charges. The payment of said late charge or such interest
shall not constitute a waiver, nor excuse or cure, of any default under this
Lease, nor prevent Landlord from exercising any other rights and remedies
available to Landlord.
3.6 Net Lease. The Rent shall be paid absolutely net to Landlord and,
---------
except as expressly provided in Section 4.7, Article 14 and Article 15, without
------------ ---------- ----------
notice or demand and without set-off, counterclaim, recoupment, abatement,
suspension, determent, deduction or defense, so that this Lease shall yield to
Landlord the full amount of the installments of Base Rent, Additional Rent and
Additional Charges throughout the Term, all as more fully set forth in Article
-------
5.
- -
3.7 Marketing Programs. Tenant may involve the Facility in regional
------------------
or national membership clubs or marketing programs that Tenant may sponsor from
time to time. Any of Tenant's national marketing activities conducted at the
Lease Property shall be of such quality in manner of presentation as is
comparable to marketing efforts conducted at other golf courses of a quality to
that required by Paragraph 1 of Exhibit E hereto. All marketing copy that Tenant
intends to display at the Leased Property shall be subject to Landlord's prior
reasonable approval. As part of its national marketing program, Tenant may refer
to the golf
4
<PAGE>
course and other facilities constituting the Leased Property as a golf course
and country club managed and/or operated by Tenant; provided that any marketing
copy that includes a photograph of the Leased Property shall be sent to the
Landlord for its reasonable approval prior to publication.
3.8 Income/Expense Prorations. Income and expense items (such as
-------------------------
prepaid membership dues and other charges) received or paid with respect to the
period in which the Term commences or terminates shall be adjusted and prorated
between Landlord and Tenant as of the Commencement Date and as of the date the
Term terminates.
ARTICLE 4 - IMPOSITIONS
-----------------------
4.1 Payment of Impositions. Subject to Section 4.7 and Section
---------------------- ------- --- -------
16.10, Tenant will pay, or cause to be paid, all Impositions before any fine,
- -----
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible. All payments of Impositions
shall be subject to Tenant's right of contest pursuant to the provisions of
Article 12. Tenant shall promptly furnish to Landlord copies of official
- ----------
receipts, if available, or other satisfactory proof evidencing such payments,
such as cancelled checks.
4.2 Information and Reporting. Landlord shall give prompt notice to
-------------------------
Tenant of all Impositions payable by Tenant hereunder of which Landlord at any
time has knowledge, but Landlord's failure to give any such notice shall in no
way diminish Tenant's obligations hereunder to pay such Impositions. Landlord
and Tenant shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased Property as
may be necessary to prepare any required returns and reports. In the event any
applicable governmental authorities classify any property covered by this Lease
as personal property, Tenant shall file all personal property tax returns in
such jurisdictions where it must legally so file. Each party, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so classified
as personal property.
4.3 Assessment Challenges. In addition to Tenant's rights under
---------------------
Article 12, Tenant may, upon notice to Landlord, at Tenant's option and at
- ----------
Tenant's sole cost and expense, protest, appeal, or institute such other
proceedings as Tenant may deem appropriate to effect a reduction of real estate
or personal property assessments and Landlord, at Tenant's expense as aforesaid,
shall fully cooperate with Tenant in such protest, appeal, or other action.
4.4 Prorations. Impositions imposed in respect of the tax-fiscal
----------
period during which the Term commences or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such termination, and Tenant's obligation to pay its prorated
share thereof shall survive such termination. If any Imposition may, at the
option of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Tenant may
elect to pay in installments, in which event Tenant shall pay all installments
(and any accrued interest on the unpaid balance of the Imposition) that are due
during the Term hereof before any fine, penalty, premium, further interest or
cost may be added thereto.
5
<PAGE>
4.5 Refunds. If any refund shall be due from any taxing authority in
-------
respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default shall
be applied as provided in Article 16.
----------
4.6 Utility Charges. Tenant shall pay or cause to be paid prior to
---------------
delinquency charges for all utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in the Leased Property during the
Term.
4.7 Reassessments Upon Transfer. Notwithstanding any other provision
---------------------------
in this Lease to the contrary, Landlord shall pay all incremental increases in
the Impositions under this Lease arising solely from (a) Landlord's sale,
disposition or other transfer of the Leased Property after the date of this
Lease or (b) a change of control in Landlord after the date of this Lease. It is
understood that the Washington County assessor has the right to re-assess the
Leased Property annually and nothing herein shall be construed as diminishing
Tenant's obligation under the Lease to pay all general real property taxes as
annually assessed against the Leased Property.
4.8 Assessment Districts. Neither party shall voluntarily consent to
--------------------
or agree in writing to (i) any special assessment or (ii) the inclusion of any
material portion of the Leased Premises into a special assessment district or
other taxing jurisdiction unless the other party shall have consented thereto,
which consent shall not be unreasonably withheld.
ARTICLE 5 - TENANT WAIVERS
--------------------------
5.1 No Termination, Abatement, Etc. Except as otherwise specifically
------------------------------
provided in this Lease, and except for those causes resulting solely from the
actions, negligence or intentional misconduct of Landlord or any Person (other
than Tenant) whose claim arose under Landlord, (i) Tenant, to the extent
permitted by law, shall remain bound by this Lease in accordance with its terms
and shall neither take any action without the consent of Landlord to modify,
surrender or terminate the same, nor be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent by reason of, and
(ii) the respective obligations of Landlord and Tenant shall not be otherwise
affected by reason of:
(a) any damage to, or destruction of, any Leased Property or any
portion thereof caused by the actions, negligence or intentional
misconduct of Tenant;
(b) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use or occupancy of the Leased Property, or any portion
thereof, caused by the actions, negligence or intentional misconduct
of Tenant; or
(c) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other
proceedings affecting Landlord or any assignee or transferee of
Landlord.
6
<PAGE>
Tenant hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law
(i) to modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) to entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Tenant
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Landlord and Tenant hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Tenant
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.
5.2 Condition of the Leased Property. Tenant acknowledges receipt and
--------------------------------
delivery of possession of the Leased Property and that Tenant has examined or
otherwise has knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease. Regardless, however, of any inspection
made by Tenant of the Leased Property and whether or not any patent or latent
defect or condition was revealed or discovered thereby, Tenant is leasing the
Leased Property "as is" in its present condition except during the time and to
the extent of Landlord's Representations and Warranties. Tenant waives and
releases any claim or action against Landlord in respect of the condition of the
Leased Property including any defects or adverse conditions latent or patent,
matured or unmatured, known or unknown by Tenant or Landlord as of the date
hereof; provided that such waiver shall not apply to any claims Tenant may have
with respect to Landlord's Representations and Warranties. TENANT ACKNOWLEDGES
THAT EXCEPT DURING THE TIME AND TO THE EXTENT OF LANDLORD'S REPRESENTATIONS AND
WARRANTIES LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER
CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE
MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE
LEASED PROPERTY, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR
PATENT, (iv) VALUE, (v) COMPLIANCE WITH SPECIFICATIONS, (vi) LOCATION, (vii)
USE, (viii) CONDITION, (ix) MERCHANTABILITY, (xii) QUALITY, (xiii) DESCRIPTION
(xiv) DURABILITY, (xv) OPERATION (xvi) THE EXISTENCE OF ANY HAZARDOUS MATERIAL
OR (xvii) COMPLIANCE OF THE LEASED PROPERTY WITH ANY LAW (INCLUDING
ENVIRONMENTAL LAWS) OR LEGAL REQUIREMENTS. TENANT ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF
ANY DEFECT OR DEFICIENCY IN THE LEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR
PATENT, AS BETWEEN LANDLORD AND TENANT, LANDLORD SHALL NOT HAVE ANY
RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF
THIS SECTION 5.2 HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE
-----------
EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH
RESPECT TO THE LEASED PROPERTY, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE
OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
7
<PAGE>
THE PROVISIONS OF THIS SECTION 5.2 SHALL NOT VITIATE, LIMIT OR OTHERWISE AFFECT
------- ---
TENANT'S RIGHTS WITH RESPECT TO LANDLORD'S REPRESENTATIONS AND WARRANTIES.
ARTICLE 6 - OWNERSHIP OF PROPERTY
---------------------------------
6.1 Leased Property. Tenant acknowledges that the Leased Property is
---------------
the property of Landlord and that Tenant has only the right to the exclusive
possession and use of the Leased Property during the Term of and upon the terms
and conditions of this Lease. Subject to the provisions of Article 24 below,
----------
Landlord hereby represents and warrants to Tenant that as of the Commencement
Date, Landlord has good and marketable title to the Leased Property free and
clear of all liens and encumbrances, except with respect to those encumbrances
referenced on Schedule B to the Title Commitment or as otherwise set forth in
writing to Tenant as of the Commencement Date. Landlord's liability to Tenant
under this Section 6.1 shall be limited to any recoveries under its owner's
-----------
policy of title insurance; provided that if Landlord has a claim under such
policy which is defeated or reduced due to the knowledge of Landlord or its
principals, such fact will not eliminate or reduce Tenant's recovery hereunder.
6.2 Landlord's Personal Property. If Landlord has provided any
----------------------------
Landlord's Personal Property, Tenant shall maintain such Property in the same
manner as Tenant maintains Tenant's Personal Property. Upon the loss,
destruction, or obsolescence of any of the Landlord's Personal Property, Tenant
shall replace such property with Tenant's Personal Property, which such property
shall be owned by Tenant. Upon the expiration or sooner termination of this
Lease, Tenant shall be obligated to leave at the Facility at no cost to Landlord
and free of any liens or encumbrances: (i) any Landlord's Personal Property in
good operating condition; and (ii) any replacements of Landlord's Personal
Property, provided that the condition of the replacements shall be substantially
comparable to the condition, age and quality of the replaced Landlord's Personal
Property as of the Commencement Date.
6.3 Tenant's Personal Property. Tenant may (and shall as provided
--------------------------
below), at its expense, install, affix or assemble or place on any parcels of
the Land or in any of the Leased Improvements, any items of Tenant's Personal
Property, and Tenant may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the Term. Tenant shall
provide and maintain during the entire Lease Term all such Tenant's Personal
Property as shall be necessary in order to operate the Facility in compliance
with all applicable Legal Requirements and Insurance Requirements and otherwise
in accordance with customary practice in the industry for the Primary Intended
Use and in accordance with its past practices.
6.4 Purchase of Tenant's Personal Property. Upon the expiration or
--------------------------------------
sooner termination of this Lease, Landlord shall have the right (but not the
obligation) to purchase from Tenant all or any portion of tangible Tenant's
Personal Property (which shall not include software or other proprietary
property):
(i) if owned by Tenant and not subject to any secured financing, at
the fair market value thereof (subject to Section 6.2);
-----------
8
<PAGE>
(ii) if owned by Tenant, but subject to a secured financing, at the
greater of the fair market value thereof or the amount of the debt
owing under such financing (subject to Section 6.2); and
-----------
(iii) if leased by Tenant and the applicable lease provides for
termination of the lease as to such Property upon the payment of a
given sum, at the greater of the fair market value thereof or the
amount of the payment so provided; provided, however, that at
-----------------
Landlord's option and if the lessor will permit Landlord to assume the
obligations under the applicable lease with respect to such Property
(separate from the obligations under a master lease if in effect),
Tenant shall, upon the request of Landlord, assign the applicable
lease (or portion thereof) to Landlord;
provided, further, however, that if Landlord's purchase right arises
--------------------------
because of a termination of this Lease as a result of an Event of Default, the
fair market value under clauses (i) through (iii) above shall be deemed to be
the depreciated net book value of Tenant's Personal Property. Landlord may elect
to purchase Tenant's Personal Property by giving notice to Tenant not later
than, as the case may be, 60 days prior to the expiration of this Lease or 60
days after the termination of this Lease upon any Event of Default. Tenant shall
transfer title to such Property by a bill of sale without warranty (except as to
ownership) upon concurrent payment in cash by Landlord; provided, however, if
-----------------
Landlord has any unpaid damages resulting from any Event of Default, Landlord
may make payment by delivery of a receipt for an offset against such damages.
6.5 Removal of Personal Property. All items of Tenant's Personal
----------------------------
Property not removed by Tenant within 14 days following the expiration or
earlier termination of this Lease shall be considered abandoned by Tenant and
may, at Landlord's discretion and without any obligation, be appropriated, sold,
destroyed or otherwise disposed of by Landlord without first giving notice
thereof to Tenant and without any payment to Tenant and without any obligation
to account therefor. Tenant shall, at its expense, restore the Leased Property
to the condition required by Section 9.1, including repair of all damage to the
-----------
Leased Property caused by the removal of Tenant's Personal Property, whether
effected by Tenant or Landlord. Landlord shall not be responsible for any loss
or damage to Tenant's Personal Property, or any other property of Tenant, by
virtue of Landlord's removal thereof at any time subsequent to the 14-day period
provided for herein.
6.6 Landlord's Waivers. Any lessor of Tenant's Personal Property may,
------------------
upon notice to Landlord and during reasonable hours, enter the Facility and take
possession of any of Tenant's Personal Property without liability for trespass
or conversion. Landlord shall, upon the request of Tenant, execute and deliver
to Tenant "landlord's waivers" as may be reasonable and customary in connection
with the financing or leasing of personal property. Such "landlord's waiver"
shall limit to 30 days the amount of time the lessor or lender has to enter upon
the Leased Premises after notice from Landlord that the Term has expired or
otherwise terminated. If Tenant requests a "landlord's waiver," Tenant shall
attempt to secure from any financing source or lessor the right on the part of
Landlord to cure the defaults of Tenant and to use any such Property upon
providing such cure.
9
<PAGE>
6.7 Water Rights. As a general matter, Landlord owns the Water Rights
------------
associated with the Leased Property. Landlord agrees to make such Water Rights
available to Tenant at Landlord's cost for Tenant to fulfill its obligations
hereunder. Landlord makes no assurances whatsoever as to the quantity, priority
or price of any Water Rights owned by Landlord. To the extent as of the
Commencement Date, Tenant owns any rights for the supply or transportation of
water to the Leased Property (the "Tenant's Original Water Rights"), Tenant
-------------------------------
shall, through the Term and subject to the provisions of this Section 6.7,
-----------
maintain and hold Tenant's Original Water Rights on a first priority basis for
the benefit of the Leased Property and shall take all steps reasonably necessary
to keep any Water Rights in good standing. If and solely to the extent that
Tenant's Original Water Rights provide resources in excess of what is needed to
properly serve the Leased Property, Tenant may use Tenant's Original Water
Rights for other purposes as it determines consistent with any restrictions
under applicable law or the terms of Tenant's Original Water Rights. During the
Term, Tenant may sell or exchange Tenant's Original Water Rights if, prior to
doing so, Tenant secures Replacement Water Rights. Upon the expiration or sooner
termination of this Lease, Tenant shall, within 10 days after request made by
Landlord, transfer to Landlord or its designee for no consideration Tenant's
Original Water Rights (to the extent still owned by Tenant) and all Replacement
Water Rights. Upon the expiration or sooner termination of this Lease, to the
extent Tenant had sold or exchanged Tenant's Original Water Rights during the
Term, Tenant shall deliver to Landlord or its designee Replacement Water Rights
that are not less favorable in any material respect to the holder of such Water
Rights than the quantity, price and priority of Tenant's Original Water Rights.
ARTICLE 7 - USE OF LEASED PROPERTY
----------------------------------
7.1 Use. After the Commencement Date and during the Term, Tenant
---
shall use or cause to be used the Leased Property and the improvements thereon
for its Primary Intended Use and in accordance with the Maintenance Standards,
Operating Standards (Exhibit "E"), and for such other uses as may be necessary
or incidental to such use. Tenant shall not use the Leased Property or any
portion thereof for any other use without the prior written consent of Landlord.
No use shall be made or permitted to be made of the Leased Property, and no acts
shall be done, which will cause the cancellation of any insurance policy
covering the Leased Property or any part thereof, nor shall Tenant sell or
otherwise provide to patrons, or permit to be kept, used or sold in or about the
Leased Property any article which may be prohibited by law or by the standard
form of fire insurance policies, or any other insurance policies required to be
carried hereunder, or fire underwriters regulations. Tenant shall, at its sole
cost, comply with all of the requirements pertaining to the Leased Property or
other improvements of any insurance board, association, organization or company
necessary for the maintenance of insurance, as herein provided, covering the
Leased Property and Tenant's Personal Property.
7.2 Specific Prohibited Uses. Tenant shall not use or occupy or
------------------------
permit the Leased Property to be used or occupied, nor do or permit anything to
be done in or on the Leased Property, in a manner which would (i) violate or
fail to comply with any law, rule or regulation or Legal Requirement, (ii)
subject to Article 10, cause structural injury to any of the Improvements or
----------
(iii) constitute a public or private nuisance or waste. Tenant shall not allow
any Hazardous Material to be located in, on or under the Leased Property, or any
adjacent
10
<PAGE>
property, or incorporated in the Facility or any improvements thereon except in
compliance with applicable law (including any Environmental Law). Tenant shall
not allow the Leased Property to be used as a landfill or a waste disposal site,
or a manufacturing, distribution or disposal facility for any Hazardous
Materials. Tenant shall neither suffer nor permit the Leased Property or any
portion thereof, including Tenant's Personal Property, to be used in such a
manner as (i) might reasonably tend to impair Landlord's title thereto or to any
portion thereof, or (ii) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of implied
dedication of the Leased Property or any portion thereof, or (iii) is in
material violation of any applicable Environmental Law.
7.3 Membership Matters, Fees and Charges. Within thirty (30) days of
------------------------------------
the date hereof, Tenant shall submit to Landlord for its approval a plan
regarding sale and classification of memberships, initiation fees and dues, and
other relevant matters pertaining to membership for the first year of the Term.
Once approved by Landlord, Tenant will not during the first year of the Term
deviate from such plan without Landlord's prior written approval. Thereafter,
Tenant will submit annually to the Operating Committee for review and comment
(referenced in Paragraph 2 of Exhibit E) a proposed membership plan for the
ensuing year. Tenant will consider in good faith any input and suggestions made
by the Operating Committee with respect to any proposed plan. Subject to the
foregoing, Tenant shall have the right to determine all matters relating to the
sale and classification of memberships, including the right to set initiation
fees, dues, and other charges, the number of memberships sold, and the rules,
regulations, policies, and procedures pertaining to memberships, provided that
Tenant shall not exercise such right in a manner that would be detrimental in
any material respect to Landlord or Landlord's interest herein. Tenant shall
have the right to determine all fees, rates and other charges relating to the
goods and services provided by Tenant at the Leased Premises and the use of the
Leased Premises by patrons, customers and members, provided that Tenant shall
not exercise such right in a manner that would be detrimental in any material
respect to Landlord or Landlord's interest herein.
7.4 Landlord to Grant Easements, Etc. Landlord shall, from time to
--------------------------------
time so long as no Event of Default has occurred and is continuing, at the
request of Tenant and at Tenant's cost and expense (but subject to the approval
of Landlord, which approval shall not be unreasonably withheld or delayed): (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Leased Property; (iii) dedicate or transfer unimproved portions
of the Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants and restrictions
affecting the Leased Property; and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Landlord of an Officer's Certificate (which Certificate, if
contested by Landlord, shall not be binding on Landlord) stating that such
grant, release, dedication, transfer, petition or amendment is not detrimental
to the proper conduct of the business of Tenant on the Leased Property and does
not reduce its value or usefulness for the Primary Intended Use. Landlord shall
not grant, release, dedicate or execute any of the foregoing items in this
Section 7.4 without obtaining Tenant's approval, which approval shall not be
- -----------
unreasonably withheld or delayed.
11
<PAGE>
ARTICLE 8 - HAZARDOUS MATERIALS
-------------------------------
8.1 Remediation. Except as provided in Section 8.5 and the last
----------- -----------
sentence of Section 8.2, if Tenant becomes aware of the presence of any
-----------
Hazardous Material in a quantity sufficient to require remediation or reporting
under any Environmental Law in, on or under the Leased Property or if Tenant,
Landlord, or the Leased Property becomes subject to any order of any federal,
state or local agency to investigate, remove, remediate, repair, close,
detoxify, decontaminate or otherwise clean up the Leased Property, Tenant shall,
at its sole expense, carry out and complete any required investigation, removal,
remediation, repair, closure, detoxification, decontamination or other cleanup
of the Leased Property. If Tenant fails to implement and diligently pursue any
such repair, closure, detoxification, decontamination or other cleanup of the
Leased Property in a timely manner, Landlord shall have the right, but not the
obligation, to carry out such action and to recover all of the reasonable costs
and expenses from Tenant as Additional Charges.
8.2 Tenant's Indemnification of Landlord. Except as provided in
------------------------------------
Section 8.5 and the last sentence of this Section 8.2, Tenant shall pay,
- ----------- -----------
protect, indemnify, save, hold harmless and defend Landlord and any Facility
Mortgagee from and against all liabilities, obligations, claims, damages
(including punitive damages), penalties, causes of action, demands, judgements
costs and expenses (including reasonable attorneys' fees and expenses), to the
extent permitted by law, imposed upon or incurred by or asserted against
Landlord or the Leased Property by reason of any Environmental Law (irrespective
of whether there has occurred any violation of any Environmental Law) in respect
of the Leased Property howsoever arising, without regard to fault on the part of
Tenant, including (a) liability for response costs and for costs of removal and
remedial action incurred by the United States Government, any state or local
governmental unit or any other Person, or damages from injury to or destruction
or loss of natural resources, including the reasonable costs of assessing such
injury, destruction or loss, incurred pursuant to any Environmental Law,
(b)liability for costs and expenses of abatement, investigation, removal,
remediation, correction or clean-up, fines, damages, response costs or penalties
which arise from the provisions of any Environmental Law, or (c) liability for
personal injury or property damage arising under any statutory or common-law
tort theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity. Notwithstanding
the foregoing or any other provision of this Lease (including, without
limitation, Section 5.2, Section 8.4 and Article 21), Tenant shall not be liable
----------- ----------- ----------
or responsible for, or otherwise be required to indemnify, defend or hold
harmless Landlord and any Facility Mortgagee from and against any matters,
conditions or events that arose, existed or occurred: (i) prior to the
Commencement Date; or (ii) through no act or omission on the part of Tenant nor
through any breach by Tenant of any of the terms of this Lease.
8.3 Survival of Indemnification Obligations. Tenant's and Landlord's
---------------------------------------
obligations and/or liability under this Article 8 arising during the Term hereof
---------
shall survive any termination of this Lease.
8.4 Environmental Violations at Expiration or Termination of Lease.
--------------------------------------------------------------
Notwithstanding any other provision of this Lease (except Section 8.5 and the
-----------
last sentence of Section 8.2), if, at a time when the Term would otherwise
-----------
terminate or expire, a violation of any Environmental Law has been asserted by
Landlord and has not been resolved in a manner
12
<PAGE>
reasonably satisfactory to Landlord, or has been acknowledged by Tenant to exist
or has been found to exist at the Leased Property or has been asserted by any
governmental authority and failure to have completed all action required to
correct, abate or remediate such a violation of any Environmental Law materially
impairs the leaseability of the Leased Property upon the expiration of the Term,
then, at the option of Landlord, the Term shall be automatically extended with
respect to the Leased Property beyond the date of termination or expiration and
this Lease shall remain in full force and effect under the same terms and
conditions until the earlier to occur of (i) the completion of all remedial
action in accordance with applicable Environmental Laws or (ii) 12 months beyond
such expiration or termination date; provided, that Tenant may, upon any such
--------
extension of the Term, terminate the Term by paying to the Landlord such amount
as is necessary in the reasonable judgment of Landlord to complete or perform
such remedial action.
8.5 Landlord's Indemnification of Tenant. Provided that Tenant
------------------------------------
notifies Landlord in writing within eighteen (18) months after the Commencement
Date, Landlord shall pay, protect, indemnify, save, hold harmless and defend
Tenant from and against all liabilities, obligations, claims, damages (including
punitive damages), penalties, causes of action, demands, judgments, costs and
expenses (including reasonable attorneys' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or asserted against Tenant or the
Leased Property by reason of any Environmental Law (irrespective of whether
there has occurred any violation of any Environmental Law) in respect of any
matter, condition, or event that arose, existed or occurred prior to the
Commencement Date, without regard to fault on the part of Landlord, including
(a) liability for response costs and for costs of removal and remedial action
incurred by the United States Government, any state or local governmental unit
or any other Person, or damages from injury to or destruction or loss of natural
resources, including the reasonable costs of assessing such injury, destruction
or loss, incurred pursuant to any Environmental Law, (b)liability for costs and
expenses of abatement, investigation, removal, remediation, correction or clean-
up, fines, damages, response costs or penalties which arise from the provisions
of any Environmental Law, or (c) liability for personal injury or property
damage arising under any statutory or common-law tort theory, including damages
assessed for the maintenance of a public or private nuisance or for carrying on
of a dangerous activity.
ARTICLE 9 - MAINTENANCE AND REPAIR
----------------------------------
9.1 Tenant's Sole Obligation. Tenant, at its expense, will keep the
------------------------
Leased Property and Tenant's Personal Property in good order, repair and
appearance (whether or not the need for such repairs occurs as a result of
Tenant's use, any prior use, the elements or the age of the Leased Property, or
any portion thereof) and maintain the Leased Property in accordance with any
applicable Legal Requirements, and, except as otherwise provided in Article 14,
----------
with reasonable promptness, make all necessary and appropriate repairs thereto
of every kind and nature, whether interior or exterior, structural or non-
structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term of this
Lease (concealed or otherwise). Tenant shall maintain the Leased Premises in
accordance with the Maintenance Standards set forth in Exhibit D and the
---------
Operating Standards set forth in Exhibit E; provided, however, that: (i) Tenant
---------
may make modifications to the Maintenance Standards and Operating Standards as
may be necessary or required to comply with Legal Requirements; and (ii) Tenant
may make modifications to the
13
<PAGE>
Maintenance Standards and Operating Standards as Landlord and Tenant, each
acting reasonably, determine to be appropriate for the prudent management of the
Leased Property. Tenant will not take or omit to take any action the taking or
Omission of which could reasonably be expected to impair the value or the
usefulness of the Leased Property or any part thereof for its Primary Intended
Use. Nothing in this Article 9 shall obligate Tenant to make any capital
---------
improvements or replacements to the Leased Property if, after an event of damage
or destruction, the Leased Property can be repaired to the standard required by
this Section 9.1.
-----------
9.2 Waiver of Statutory Obligations. Landlord shall not under any
-------------------------------
circumstances be required to build or rebuild any improvements on the Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, in connection with this
Lease, or to maintain the Leased Property in any way. Tenant hereby waives, to
the extent permitted by law, the right to make repairs at the expense of
Landlord pursuant to any law in effect at the time of the execution of this
Lease or hereafter enacted.
9.3 Mechanics' Liens. Nothing contained in this Lease and no action
----------------
or inaction by Landlord shall be construed as (i) constituting the consent or
request of Landlord expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Leased
Property or any part thereof; or (ii) giving Tenant any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property, in either case, in such
fashion as would permit the making of any claim against Landlord in respect
thereof or to make any agreement that may create, or in any way be the basis
for, any right, title, interest, lien, claim or other encumbrance upon the
estate of Landlord in the Leased Property, or any portion thereof.
9.4 Surrender of Leased Property. Unless the Lease shall have been
----------------------------
terminated pursuant to the provisions of Article 14, Tenant shall, upon the
----------
expiration or prior termination of the Term, vacate and surrender the Leased
Property to Landlord in the condition in which the Leased Property was
originally received from Landlord, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease
and except for ordinary wear and tear (subject to the obligation of Tenant to
maintain the Leased Property in good order and repair during the entire Term of
the Lease).
ARTICLE 10 - TENANT'S IMPROVEMENTS
----------------------------------
10.1 Tenant's Right to Construct. During the Term of this Lease,
---------------------------
Tenant may make alterations, additions, changes and/or improvements to the
Leased Property (individually, a "Tenant Improvement," and collectively, "Tenant
------------------ ------
Improvements"). Except as otherwise agreed to by Landlord in writing, any such
- ------------
Tenant Improvement shall be made at Tenant's sole expense and shall become the
property of Landlord upon termination of this Lease. Tenant will not make any
changes in the design or layout of the golf courses without Landlord's prior
approval. Unless made on an emergency basis to prevent injury to Person or
property, Tenant will submit plans for any other Tenant Improvement with a value
of more than $250,000 in the
14
<PAGE>
first Fiscal Year and increased by four percent per annum for each subsequent
Fiscal Year to Landlord for Landlord's prior approval, such approval not to be
unreasonably withheld or delayed. Landlord's approval may require removal of the
Tenant Improvements at the end of the Term.
10.2 Scope of Right. Subject to Section 10.1, at Tenant's cost and
-------------- ------------
expense and following reasonable advance notice to Landlord, Tenant shall have
the right to:
(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificates of need that
Tenant requires to construct any Tenant Improvement;
(b) demolish, remove or otherwise dispose of any of the Leased
Improvements;
(c) erect upon the Leased Property such Tenant Improvements as Tenant
deems desirable;
(d) make additions, alterations, changes and improvements in any
Tenant Improvement so erected;
(e) raze and demolish any Tenant Improvement together with the right
to salvage therefrom; and
(f) engage in any other lawful activities that Tenant determines are
necessary or desirable for the development of the Leased Property in
accordance with its Primary Intended Use;
provided, however, Tenant shall not make any Tenant Improvement which
-----------------
would, in Landlord's reasonable judgment, impair the value or Primary Intended
Use of the Leased Property without Landlord's prior written consent.
10.3 Cooperation of Landlord. Landlord shall cooperate with Tenant and
-----------------------
take such actions, including the execution and delivery to Tenant of any
applications or other documents, reasonably requested by Tenant in order to
obtain any governmental approvals sought by Tenant to construct any Tenant
Improvement within 10 Business Days following the later of (a) the date Landlord
receives Tenant's request, or (b) the date of delivery of any such application
or document to Landlord, so long as the taking of such action, including the
execution of said applications or documents, shall be without cost to Landlord
(or if there is a cost to Landlord, such cost shall be reimbursed by Tenant),
and will not cause Landlord to be in violation of any law, ordinance or
regulation.
15
<PAGE>
10.4 Commencement of Construction. Tenant agrees that:
----------------------------
(a) Tenant shall diligently seek all governmental approvals relating
to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant Improvement,
Tenant shall diligently prosecute any such construction to completion
in accordance with applicable insurance requirements and the laws,
rules and regulations of all governmental bodies or agencies having
jurisdiction over the Leased Property;
(c) Landlord shall have the right at any time and from time to time
to post and maintain upon the Leased Property such notices as may be
necessary to protect Landlord's interest from mechanics' liens,
materialmen's liens or liens of a similar nature;
(d) Tenant shall not suffer or permit any mechanics' liens or any
other claims or demands arising from the work of construction of any
Tenant Improvement to be enforced against the Leased Property or any
part thereof, and Tenant agrees to hold Landlord and said Leased
Property free and harmless from all liability from any such liens,
claims or demands, together with all costs and expenses in connection
therewith; and
(e) All work shall be performed in a good and workmanlike manner.
10.5 Rights in Tenant Improvements. Notwithstanding anything to the
-----------------------------
contrary in this Lease, all Tenant Improvements constructed pursuant to Section
-------
10.1, and any and all subsequent additions thereto and alterations and
- ----
replacements thereof, shall be the sole and absolute property of Tenant during
the Term of this Lease. Upon the expiration or early termination of this Lease,
all such Tenant Improvements shall become the property of Landlord, subject to
Landlord's right to require removal set forth in Section 10.1. Without limiting
------------
the generality of the foregoing, Tenant shall be entitled to all federal and
state income tax benefits associated with any Tenant Improvement during the Term
of this Lease.
ARTICLE 11 - LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
---------------------------------------------------------
11.1 Liens. Subject to the provisions of Article 12 relating to
----- ----------
permitted contests, Tenant will not directly or indirectly create or allow to
remain, and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of the Rent, not including,
however:
(a) this Lease;
(b) the matters, if any, that existed as of the Commencement Date;
16
<PAGE>
(c) restrictions, liens and other encumbrances which are consented to
in writing by Landlord, or any easements granted pursuant to the
provisions of Section 7.4 of this Lease;
-----------
(d) liens for those taxes of Landlord which Tenant is not required to
pay hereunder;
(e) subleases permitted by Article 22;
----------
(f) liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as (1) the same are not yet payable or
are payable without the addition of any fine or penalty or (2) such
liens are in the process of being contested as permitted by Article
-------
12;
--
(g) liens of mechanics, laborers, materialmen, suppliers or vendors
for sums either disputed (provided that such liens are in the process
-------------
of being contested as permitted by Article 12) or not yet due; and
----------
(h) any liens which are the responsibility of Landlord pursuant to
the provisions of Article 24.
----------
11.2 Encroachments and Other Title Matters. Excepting any matters
-------------------------------------
granted or created by Landlord or any predecessor-in-interest with respect to
the Leased Premises, if any of the Leased Improvements shall, at any time,
encroach upon any property, street or right-of-way adjacent to the Leased
Property, or shall violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting the Leased Property, or any
part thereof, or shall impair the rights of others under any easement or right-
of-way to which the Leased Property is subject, or the use of the Leased
Property is impaired, limited or interfered with by reason of the exercise of
the right of surface entry or any other rights under a lease or reservation of
any oil, gas, water or other minerals, then promptly upon the request of
Landlord or at the behest of any Person affected by any such encroachment,
violation or impairment, Tenant, at its sole cost and expense (subject to its
right to contest the existence of any such encroachment, violation or
impairment), shall protect, indemnify, save harmless and defend Landlord from
and against all losses, liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including reasonable attorneys' fees and
expenses) based on or arising by reason of any such encroachment, violation or
impairment and in such case, in the event of an adverse final determination,
either (i) obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation or
impairment, whether the same shall affect Landlord or Tenant; or (ii) make such
changes in the Leased Improvements, and take such other actions, as Tenant in
the good faith exercise of its judgment deems reasonably practicable, to remove
such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the Leased Improvements, and in any event
take all such actions as may be necessary in order to be able to continue the
operation of the Leased Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased Improvements were operated prior to
the assertion of such violation or encroachment. Tenant's obligations under this
Section 11.2 shall be in addition to and shall in no way discharge or diminish
- ------------
any obligation of any insurer under any
17
<PAGE>
policy of title or other insurance and Tenant shall be entitled to a credit for
any sums recovered by Landlord under any such policy of title or other
insurance. Notwithstanding any other provision of this Lease, the obligations of
Tenant set forth in this Section 11.2 shall not apply to any such encroachments,
------------
violations or impairments existing as of the Commencement Date.
ARTICLE 12 - PERMITTED CONTESTS
-------------------------------
Tenant, on its own or on Landlord's behalf (or in Landlord's name) but
at Tenant's expense, may contest, by appropriate legal proceedings conducted in
good faith and with due diligence, the amount or validity or application, in
whole or in part, of any Imposition or any Legal Requirement or Insurance
Requirement or any lien, attachment, levy, encumbrance, charge or claim not
otherwise permitted by Section 11.1, provided that:
------------- -------------
(a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of
such proceedings shall suspend the collection thereof from Landlord
and from the Leased Property, and neither the Leased Property nor any
Rent therefrom nor any part thereof or interest therein would be in
any danger of being sold, forfeited, attached or lost pending the
outcome of such proceedings;
(b) in the case of a Legal Requirement, Landlord would not be subject
to criminal or material civil liability for failure to comply
therewith pending the outcome of such proceedings. Nothing in this
Section 12(b), however, shall permit Tenant to delay compliance with
-------------
any requirement of an Environmental Law to the extent such non-
compliance poses an immediate threat of injury to any Person or to the
public health or safety or of material damage to any real or personal
property;
(c) in the case of a Legal Requirement and/or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable security, if
any, as may be demanded by Landlord to insure ultimate payment of the
same and to prevent any sale or forfeiture of the affected Leased
Property or the Rent by reason of such non-payment or noncompliance,
provided however, the provisions of this Article 12 shall not be
---------------- ----------
construed to permit Tenant to contest the payment of Rent (except as
to contests concerning the method of computation or the basis of levy
of any Imposition or the basis for the assertion of any other claim)
or any other sums payable by Tenant to Landlord hereunder;
(d) no such contest shall interfere in any material respect with the
use or occupancy of the Leased Property;
(e) in the case of an Insurance Requirement, the coverage required by
Article 13 shall be maintained; and
----------
(f) if such contest be finally resolved against Landlord or Tenant,
Tenant shall, as Additional Charges due hereunder, promptly pay the
amount required
18
<PAGE>
to be paid, together with all interest and penalties accrued thereon,
or comply with the applicable Legal Requirement or Insurance
Requirement.
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorizations and other documents as may reasonably be required in any such
contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify and save Landlord
harmless against any liability, cost or expense of any kind that may be imposed
upon Landlord in connection with any such contest and any loss resulting
therefrom.
ARTICLE 13 - INSURANCE
----------------------
13.1 General Insurance Requirements. During the Term of this Lease,
------------------------------
Tenant shall at all times keep the Leased Property, and all property located in
or on the Leased Property, including all Landlord's Personal Property, Tenant's
Personal Property and any Tenant Improvements, insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the State in which the Leased
Property is located. The policies must name Landlord as an "Additional Insured."
Losses shall be payable to Landlord and/or Tenant as provided in Article 14.
----------
In addition, the policies shall name as an additional insured the holder of any
mortgage, deed of trust or other security agreement securing any indebtedness or
any other Landlord's Encumbrance placed on the Leased Property in accordance
with the provisions of Article 24 ("Facility Mortgage") by way of a standard
---------- -----------------
form of mortgagee's loss payable endorsement. Any loss adjustment shall require
the written consent of Landlord, Tenant, and each Facility Mortgagee. Evidence
of insurance shall be deposited with Landlord and, if requested, with any
Facility Mortgagee(s). The policies on the Leased Property, including the Leased
Improvements, Fixtures, Tenant's Personal Property and any Tenant Improvements,
shall insure against the following risks:
13.1.1 All Risk. Loss or damage by all risks perils including but
--------
not limited to, fire, vandalism, malicious mischief and extended coverages,
including but not limited to, sprinkler leakage, in an amount not less than
100% of the then Full Replacement Cost thereof.
13.1.2 Liability. Claims for personal injury or property damage
---------
under a policy of comprehensive general liability insurance with amounts
not less than $10,000,000 per occurrence and in the aggregate.
13.1.3 Flood. Flood (when the Leased Property is located in whole
-----
or in material part in a designated flood plain area) and such other
hazards and in such amounts as may be customary for comparable properties
in the area; provided however, that Tenant shall not be required to
----------------
participate in the National Flood Insurance Program.
13.1.4 Worker's Compensation. Adequate worker's compensation
---------------------
insurance coverage for all Persons employed by Tenant on the Leased
Property in accordance with the requirements of applicable federal, state
and local laws.
13.1.5 Other Insurance. Such other insurance on or in connection
---------------
with any of the Leased Property as Landlord or any Facility Mortgagee may
reasonably
19
<PAGE>
require, which at the time is usual and commonly obtained in connection
with properties similar in type of building size and use to the Leased
Property and located in the geographic area where the Leased Property is
located; provided however, that Landlord shall bear the cost of any such
----------------
coverage requested under this Section 13.1.5.
--------------
13.2 Replacement Cost. In the event either party believes that the
----------------
Full Replacement Cost of the insured property has increased or decreased at any
time during the Lease Term, it shall have the right to have such Full
Replacement Cost redetermined by the fire insurance company which is then
carrying the largest amount of fire insurance carried on the Leased Property
(the "Impartial Appraiser"). The party desiring to have the Full Replacement
-------------------
Cost so redetermined shall forthwith, on receipt of such determination by such
Impartial Appraiser, give written notice thereof to the other party hereto. The
determination of such Impartial Appraiser shall be final and binding on the
parties hereto, and Tenant shall forthwith increase, or may decrease, the amount
of the insurance carried pursuant to this Section 13.2, as the case may be, to
------------
the amount so determined by the Impartial Appraiser. Each party shall pay one-
half of the fee, if any, of the Impartial Appraiser.
13.3 Waiver of Subrogation. Landlord and Tenant waive their respective
---------------------
right of recovery against the other to the extent damage or liability is insured
against under a policy or policies of insurance. All insurance policies carried
by either party covering the Leased Property including contents, fire and
casualty insurance, shall expressly waive any right of subrogation on the part
of the insurer against the other party (including any Facility Mortgagee). The
parties hereto agree that their policies will include such waiver clause or
endorsement so long as the same are obtainable without extra cost, and in the
event of such an extra charge the other party, at its election, may pay the
same, but shall not be obligated to do so.
13.4 Form Satisfactory, Etc. All of the policies of insurance referred
----------------------
to in Section 13.1 shall be written in a form reasonably satisfactory to
------------
Landlord and by insurance companies rated not less than A-X by A.M. Best's
Insurance Guide. In addition, all insurance carried by Tenant hereunder shall
have deductible amounts which are not in excess of the self-insurance limits
specified by Section 13.5. Tenant shall pay all premiums for the policies of
insurance referred to in Section 13.1 and shall deliver certificates thereof to
------------
Landlord prior to their effective date (and with respect to any renewal policy,
at least 10 days prior to the expiration of the existing policy). In the event
Tenant fails to satisfy its obligations under this Section 13.4, Landlord shall
------------
be entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor, which premiums shall be repayable to Landlord upon written
demand as Additional Charges. Each insurer mentioned in Section 13.1 shall
------------
agree, by endorsement on the policy or policies issued by it, or by independent
instrument furnished to Landlord, that it will give to Landlord 30 days' written
notice before the policy or policies in question shall be altered, allowed to
expire or cancelled. Each such policy shall also provide that any loss otherwise
payable thereunder shall be payable notwithstanding (i) any act or omission of
Landlord or Tenant which might, absent such provision, result in a forfeiture of
all or a part of such insurance payment, (ii) the occupation or use of the
Leased Property for purposes more hazardous than those permitted by the
provisions of such policy, (iii) any foreclosure or other action or proceeding
taken by any Facility Mortgagee pursuant to any provision of a mortgage note,
assignment or other document evidencing or securing a loan upon
20
<PAGE>
the happening of an event of default therein or (iv) any change in title to or
ownership of the Leased Property.
13.5 Change in Limits. In the event that Landlord shall at any time
----------------
reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Tenant pursuant to Section 13.1.2 is either
--------------
excessive or insufficient (but only if the liability insurance limit is not less
than $3,000,000 per person or per occurrence), the parties shall endeavor to
agree on the proper and reasonable limits for such insurance to be carried; and
such insurance shall thereafter be carried with the limits thus agreed on until
further changed pursuant to the provisions of this Section 13.5. Notwithstanding
------------
the foregoing, the deductibles for such insurance or the amount of such
insurance which is self-retained by Tenant shall not be greater than two percent
(2%) of Tenant's net worth determined in accordance with generally accepted
accounting principles.
13.6 Blanket Policy. Notwithstanding anything to the contrary
--------------
contained in this Article 13, Tenant's obligations to carry the insurance
----------
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Tenant; provided.
---------
however, that the coverage afforded Landlord will not be reduced or diminished
- -------
or otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of this
Article 13 are otherwise satisfied. The amount of the total insurance shall be
- ----------
specified either (i) in each such "blanket" or umbrella policy or (ii) in a
written statement, which Tenant shall deliver to Landlord and Facility
Mortgagee, from the insurer thereunder. A certificate of each such "blanket" or
umbrella policy shall promptly be delivered to Landlord and Facility Mortgagee.
If requested by Landlord, Tenant shall provide Landlord with a certified copy of
the "blanket" or umbrella insurance policy.
ARTICLE 14 - APPLICATION OF INSURANCE PROCEEDS
----------------------------------------------
14.1 Insurance Proceeds. All proceeds of insurance payable by reason
------------------
of any loss or damage to the Leased Property, or any portion thereof, and
insured under any policy of insurance required by Article 13 shall (i) if
----------
greater than $500,000, be paid to Landlord and held by Landlord and (ii) if less
thin such amount, be paid to Tenant and held by Tenant. All such proceeds shall
be held in trust and shall be made available for reconstruction or repair, as
the case may be, of any damage to or destruction of the Leased Property, or any
portion thereof.
14.1.1 Disbursement of Proceeds. Any proceeds held by Landlord or
------------------------
Tenant shall be paid out by Landlord or Tenant from time to time for the
reasonable costs of such reconstruction or repair; provided, however, that
--------- -------
Landlord shall disburse proceeds subject to the following requirements:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the restoration shall
have been approved by Landlord, which approval shall not be unreasonably
withheld or delayed and (B) appropriate waivers of mechanics' and
materialmen's liens shall have been filed;
21
<PAGE>
(ii) at the time of any disbursement, subject to Article 12, no
----------
mechanics' or materialmen's liens shall have been filed against any of
the Leased Property and remain undischarged, unless a satisfactory bond
shall have been posted in accordance with the laws of the State;
(iii) disbursements shall be made from time to time in an amount not
exceeding the cost of the work completed since the last disbursement,
upon receipt of (A) satisfactory evidence, of the stage of completion,
the estimated total cost of completion and performance of the work to
date in a good and workmanlike manner in accordance with the contracts,
plans and specifications, (B) waivers of liens, (C) a satisfactory
bringdown of title insurance and (D) other evidence of cost and payment
so that Landlord and Facility Mortgagee can verify that the amounts
disbursed from time to time are represented by work that is completed, in
place and free and clear of mechanics' and materialmen's lien claims;
(iv) each request for disbursement shall be accompanied by a certificate
of Tenant, signed by the president or a vice president of Tenant,
describing the work for which payment is requested, stating the cost
incurred in connection therewith, stating that Tenant has not previously
received payment for such work and, upon completion of the work, also
stating that the work has been fully completed and complies with the
applicable requirements of this Lease;
(v) to the extent actually held by Landlord and not by a Facility
Mortgagee, (1) the proceeds shall be held in a separate account and shall
not be commingled with Landlord's other funds, and (2) interest shall
accrue on funds so held at the money market rate of interest and such
interest shall constitute part of the proceeds; and
(vi) such other reasonable conditions as Landlord or Facility Mortgagee
may reasonably impose, including, without limitation, payment by Tenant
of reasonable costs of administration imposed by or on behalf of Facility
Mortgagee should the proceeds be held by Facility Mortgagee.
14.1.2 Excess Proceeds. All excess proceeds of insurance remaining
---------------
after the completion of the restoration or reconstruction of the Leased
Property (or in the event neither Landlord nor Tenant is required or elects to
repair and restore) shall be paid to Landlord and Tenant in like proportions
to the value of Landlord's interests in the Leased Property and Tenant's
interest in Tenant's Personal Property and the Tenant Improvements, or any
portion thereof, as determined under Article 13, upon completion of any such
----------
repair and restoration except as otherwise specifically provided below in this
Article 14. All salvage resulting from any risk covered by insurance shall
----------
belong to Landlord.
14.2 Reconstruction Covered bv Insurance.
-----------------------------------
14.2.1 Destruction Rendering Facility Unsuitable for its Primary Use.
-------------------------------------------------------------
If during the Term the Leased Property is totally or partially destroyed from
a risk
22
<PAGE>
covered by the insurance described in Article 13 and the Facility thereby is
----------
rendered Unsuitable For Its Primary Intended Use, Tenant shall diligently
restore the Facility to substantially the same condition as existed
immediately before the damage or destruction; provided, however, if the
Facility cannot be fully repaired or restored within a 12-month period from
the date of the damage or destruction to substantially the same condition as
existed immediately before the damage or destruction, then Tenant may
terminate this Lease by giving Landlord written notice of such termination
within 60 days after the date of such damage or destruction, and the
effective date of such termmation shall be 30 days following such notice of
termination; provided, however, if Landlord notifies Tenant in writing
within fifteen (15) days of Landlord's receipt of Tenant's notice of
termination that Landlord intends to restore the Facility to substantially
the same condition as existed immediately before the damage and destruction
and Landlord diligently commences and prosecutes such restoration and
completes such restoration within twelve (12) months after the date of the
damage or destruction, then Tenant's election to terminate the Lease shall
be deemed rescinded and the Lease shall remain in full force and effect.
Notwithstanding Section 14.4 below, in the event Landlord elects to restore
------------
the Facility as provided in the immediately preceding sentence, during the
period from the date of Tenant's notice of termmation through the date the
restoration of the Facility is completed, the Base Rent shall be deemed to
be zero and Tenant's payment of Rent shall consist only of the payment of
Additional Rent in accordance with Section 9 of the Basic Lease Provisions
---------
and the Additional Charges as required by the Detailed Lease Provisions.
Upon any such termination of the Lease by Tenant or upon Landlord's election
to restore the Facility as provided in this section, Landlord shall be
entitled to retain all insurance proceeds, grossed up by Tenant to account
for the deductible or any self-insured retention; provided, further, that
Tenant shall be entitled to retain or receive all insurance proceeds
relating to Tenant's Personal Property and the Tenant Improvements.
14.2.2 Destruction Not Rendering Facility
----------------------------------
Unsuitable for its Primary Use. If during the Term, the Leased Property is
------------------------------
totally or partially destroyed from a risk covered by the insurance
described in Article 13, but the Facility is not thereby rendered
----------
Unsuitable For Its Primary Intended Use, Tenant shall diligently restore
the Facility to substantially the same condition as existed immediately
before the damage or destruction; provided, however, Tenant shall not be
-----------------
required to restore Tenant's Personal Property and/or any Tenant
Improvements if failure to do so does not adversely affect the amount of
Additional Rent payable hereunder. Such damage or destruction shall not
terminate this Lease; provided further, however, if Tenant and Landlord
-------------------------
cannot within 12 months after said damage obtain all necessary governmental
approvals, including building permits, licenses, conditional use permits
and any certificates of need, after diligent efforts to do so in order to
be able to perform all required repair and restoration work and to operate
the Facility for its Primary Intended Use in substantially the same manner
as immediately prior to such damage or destruction, Tenant may terminate
this Lease upon 30 days prior written notice to Landlord; provided further.
-----------------
however, if Landlord notifies Tenant in writing within fifteen (15) days of
-------
Landlord's receipt of Tenant's notice of termination that Landlord intends
to restore the Facility to substantially the same condition as existed
immediately before the damage and destruction and Landlord diligently
commences and prosecutes such restoration and completes such
23
<PAGE>
restoration within ninety (90) days after the date of Tenant's notice of
termination, then Tenant's election to terminate the Lease shall be deemed
rescinded and the Lease shall remain in full force and effect.
Notwithstanding Section 14.4 below, in the event Landlord elects to restore
------------
the Facility as provided in the immediately preceding sentence, during the
period from the date of Tenant's notice of termination through the date the
restoration of the Facility is completed, the Base Rent shall be deemed to
be zero and Tenant's payment of Rent shall consist only of the payment of
Additional Rent in accordance with Section 9 of the Basic Lease Provisions
---------
and the Additional Charges as required by the Detailed Lease Provisions.
Upon any such termination of the Lease by Tenant or upon Landlord's election
to restore the Facility as provided in this section, Landlord shall be
entitled to retain all insurance proceeds, grossed up by Tenant to account
for the deductible or any self-insured retention; provided, further, that
Tenant shall be entitled to retain or receive all insurance proceeds
relating to Tenant's Personal Property and the Tenant Improvements.
14.2.3 Costs of Repair. If Tenant restores the
-------- ------
Facility as provided in Sections 14.2.1 and 14.2.2 above and the cost of
--------------- ------
the repair or restoration exceeds the amount of proceeds received by
Landlord or Tenant from the insurance required under Article 13, Tenant
----------
shall pay for such excess cost of repair or restoration. If Landlord
restores the Facility as provided in Sections 14.2.1 and 14.2.2 above and
--------------- ------
the cost of the repair or restoration exceeds the amount of proceeds
received by Landlord as provided in those sections, Landlord shall pay for
such excess cost of repair or restoration.
14.3 Reconstruction Not Covered by Insurance. If during the Term, the
-------------- --- ------- -- ---------
Facility is totally or materially destroyed from a risk not covered by the
insurance described in Article 13, whether or not such damage or destruction
----------
renders the Facility Unsuitable For Its Primary Intended Use, Tenant shall
either (A) restore the Facility, at Tenant's cost, to substantially the same
condition as existed immediately before the damage or destruction, or (B) elect
to terminate this Lease upon 60 days prior written notice to Landlord; provided,
however, if Landlord notifies Tenant in writing within fifteen (15) days of
Landlord's receipt of Tenant's notice of termination that Landlord intends to
restore the Facility, at Landlord's cost, to substantially the same condition as
existed immediately before the damage and destruction and Landlord diligently
commences and prosecutes such restoration and completes such restoration within
ninety (90) days after the date of Tenant's notice of termination, then Tenant's
election to terminate the Lease shall be deemed rescinded and the Lease shall
remain in full force and effect. In the event Landlord elects to restore the
Facility as provided in the immediately preceding sentence, during the period
from the date of Tenant's notice of termination through the date the restoration
of the Facility is completed, the Base Rent shall be deemed to be zero and
Tenant's payment of Rent shall consist only of the payment of Additional Rent in
accordmce with Section 9 of the Basic Lease Provisions and the Additional
---------
Charges as required by the Detailed Lease Provisions.
14.4 No Abatement of Rent. Except as otherwise provided in Sections 14.2
-- --------- -- ---- -------------
and 14.3 above, this Lease shall remain in full force and effect and Tenant's
----
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the period required for repair and
restoration; provided, however, that if there is no Event of
-----------------
24
<PAGE>
Default, Tenant shall be entitled to retain any proceeds of rental vaijie or
business interruption insurance coverage.
14.5 Waiver. Tenant hereby waives any statutory rights of termination
------
which may arise by reason of any damage or destruction of the Facility which
Landlord or Tenant is obligated to restore or may restore under any of the
provisions of this Lease.
14.6 Damage Near End of Term. Notwithstanding any other provision to
------------------ ----
the contrary in this Article 14, if damage to or destruction of the Leased
----------
Property occurs during the last 24 months of the Term of this Lease, and if such
damage or destruction cannot reasonably be expected to be fully repaired or
restored prior to the date that is 12 months prior to the end of the then-
applicable Term, then Tenant shall have the right to terminate the Lease on 30
days' prior notice to Landlord by giving notice thereof to Landlord within 60
days after the date of such damage or destruction. Upon any such termination,
Landlord shall be entitled to retain all insurance proceeds, grossed up by
Tenant to account for the deductible or any self-insured retention; provided
--------
however, that Tenant shall be entitled to retain or receive all insurance
- -------
proceeds relating to Tenant's Personal Property and Tenant Improvements.
ARTICLE 15- CONDEMNATION
------------------------
15.1 Total Taking. If at any time during the Term the Leased Property
------------
is totally and permanently taken by Condemnation, this Lease shall terminate on
the Date of Taking and Tenant shall promptly pay all outstanding rent and other
charges through the date of termination.
15.2 Partial Taking. If a portion of the Leased Property is taken by
--------------
Condemnation, this Lease shall remain in effect if the Facility is not thereby
rendered Unsuitable For Its Primary Intended Use, but if the Facility is thereby
rendered Unsuitable For Its Primary Intended Use, this Lease shall terminate on
the Date of Taking.
15.3 Restoration. If there is a partial taking of the Leased Property
-----------
and this Lease remains in full force and effect pursuant to Section 15.2,
------------
Landlord at its cost shall accomplish all necessary restoration up to but not
exceeding the amount of the Award payable to Landlord, as provided herein. If
Tenant receives an Award under Section 15.4, Tenant shall repair or restore any
------------
Tenant Improvements up to but not exceeding the amount of the Award payable to
Tenant therefor.
15.4 Award-Distribution. The entire Award shall belong to and be paid
------------------
to Landlord, except that, subject to the rights of the Facility Mortgagee,
Tenant shall be entitled to receive from the Award, if and to the extent such
Award specifically includes such items, a sum attributable to the value, if any,
of: (i) any Tenant Improvements and (ii) the leasehold interest of Tenant under
this Lease; provided, however, that if the amount received by Landlord and the
-----------------
Facility Mortgagee is less than the Condemnation Threshold, then the amount of
the Award otherwise payable to Tenant for the value of its leasehold interest
under this Lease (and not any other funds of Tenant) shall instead be paid over
to Landlord up to the amount of the shortfall.
25
<PAGE>
15.5 Temporary Taking. The taking of tile Leased Property, or any part
----------------
thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by tile taking authority has
continued for longer than six months. During any such six month period, which
shall be a temporary taking, all the provisions of this HAse shall remain in
full force and effect with no abatement of rent payable by Tenant hereunder. In
the event of any such temporary taking, the entire amount of any such Award made
for such temporary taking allocable to tile Term of this Lease, whether paid by
way of damages, rent or otherwise, shall be paid to Tenant.
ARTICLE 16- EVENTS OF DEFAULT
--------------------- -------
16.1 Events of Default. If any one or more of the following events
-----------------
(individually, an "Event of Default") shall occur:
----------------
(a) if Tenant shall fail to make payment of the Rent payable by Tenant
under this Lease when the same becomes due and payable and such
failure is not cured by Tenant within a period of three (3) days after
receipt by Tenant of notice thereof from Landlord; provided, however,
-----------------
that such notice shall be in lieu of and not in addition to any notice
required under applicable law and provided further that such three (3)
----------------
day notice shall not be required in the event of more than two (2)
defaults in any twelve month period;
(b) if Tenant shall fail to comply with the provisions of Article 22
----------
with respect to a Change of Control;
(c) if, other than as a result of Unavoidable Delays, Tenant shall
fail to observe or perform any material term, covenant or condition of
this Lease and such failure is not cured by Tenant within a period of
thirty (30) days after receipt by Tenant of notice thereof from
Landlord (except that no such notice shall be required in the event of
more than two monetary defaults in any twelve month period), unless
such failure cannot with due diligence be cured within a period of
thirty (30) days, in which case such failure shall not be deemed to
continue if Tenant proceeds promptly and with due diligence to cure
the failure and diligently completes the curing thereof; provided,
---------
however, that such notice shall be in lieu of and not in addition to
-------
any notice required under applicable law; provided further, however,
-------------------------
that the cure period shall not extend beyond 30 days as otherwise
provided by this Section 16.1(c) if the facts or circumstances giving
---------------
rise to the default are creating a further harm to Landlord or the
Leased Property and Landlord makes a good faith determination that
Tenant is not undertaking remedial steps that Landlord would cause to
be taken if this Lease were then to terminate.
(d) if Tenant shall:
(i) admit in writing its inability to pay its debts generally as
they become due,
26
<PAGE>
(ii) file a petition in bankruptcy or a petition to take advantage of
any insolvency act,
(iii) make an assignment for the benefit of its creditors,
(iv) be unable to pay its debts as they mature,
(v) consent to the appointment of a receiver of itself or of the whole
or any substantial part of its property, or
(vi) file a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof;
(e) if Tenant shall, on a petition in bankruptcy filed against it, be
adjudicated as bankrupt or a court of competent jurisdiction shall enter
an order or decree appointing, without the consent of Tenant, a receiver
of Tenant or of the whole or substantially all of its property, or
approving a petition filed against it seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws or anv other
applicable law or statute of the United States of America or any state
thereof, and such judgment, order or decree shall not be vacated or set
aside or stayed within 60 days from the date of the entry thereof;
(f) if Tenant shall be liquidated or dissolved, or shall begin proceedings
toward such liquidation or dissolution;
(g) if the estate or interest of Tenant in the Leased Property or any part
thereof shall be levied upon or attached in any proceeding and the same
shall not be vacated or discharged within the later of ninety (90) days
after commencement thereof or thirty (30) days after receipt by Tenant of
notice thereof from Landlord (unless Tenant shall be contesting such lien
or attachment in accordance with Article 12); provided, however, that such
---------- -----------------
notice shall be in lieu of and not in addition to any notice required
under applicable law;
(h) if, except as a result of maintenance, repairs, damage, destruction or
a partial or complete Condemnation or other Unavoidable Delays, Tenant
voluntarily ceases operations on the Leased Property for a period in
excess of fifteen (15) consecutive days;
(i) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be
incorrect, now or hereafter, in any material respect and any adverse
effect on Landlord of any such misrepresentation or breach of warranty
hall not been corrected to Landlord's satisfaction within twenty (20) days
after Tenant becomes aware of, or is notified by Landlord of the fact of,
such misrepresentation or breach of warranty; or
27
<PAGE>
(j) if an Event of Default under future Other Pr6perty Leases, if any,
occurs, provided, however, that if such Event of Default (other than for
-----------------
the failure to pay money or post a Letter of Credit if required hereunder)
arose from occurrences beyond the reasonable control of Tenant, such Event
of Default shall not constitute an Event of Default under this Section
-------
16.1(j).
-------
THEN, Landlord may terminate this Lease by giving Tenant notice of
such termination and upon the expiration of the time fixed in such notice, the
Term shall terminate and all rights of Tenant under this Lease shall cease.
Landlord shall have all rights at law and in equity available to Landlord as a
result of Tenant's breach of this Lease.
16.2 Payment of Costs. Tenant shall, to the extent permitted by law,
----------------
pay as Additional Charges all costs and expenses incurred by or on behalf of
Landlord, including reasonable attorneys' fees and expenses, as a result of any
Event of Default hereunder.
16.3 Exceptions. No Event of Default (other than a failure to make
----------
payment of money or post a Letter of Credit, if required hereunder) shall be
deemed to exist under clause (c) or clause (j) of Section 16.1 during any time
------------
the curing thereof is prevented by an Unavoidable Delay; provided that, upon the
-------------
cessation of such Unavoidable Delay, Tenant shall remedy such default without
further delay.
16.4 Certain Remedies. If an Event of Default shall have occurred (and
----------------
the event giving rise to such Event of Default has not been cured within the
curative period relating thereto as set forth in Section 16.1) and be
------------
continuing, whether or not this Lease has been terminated pursuant to Section
-------
16.1, Tenant shall, to the extent permitted by law, if required by Landlord so
- ----
to do, immediately surrender to Landlord the Leased Property pursuant to the
provisions of Section 16.1 and quit the same and Landlord may enter upon and
------------
repossess the Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Tenant and all other Persons and any and
all Tenant's Personal Property from the Leased Property subject to any
requirement of law.
16.5 Damages. None of (a) the termination of this Lease pursuant to
-------
Section 16.1, (b)the repossession of the Leased Property, (c) the failure of
- ------------
Landlord, notwithstanding reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of all or any portion thereof, nor (e) the failure
of Landlord to collect or receive any rentals due upon any such reletting, shall
relieve Tenant of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Tenant shall forthwith pay to Landlord all Rent due and
payable with respect to the Leased Property to, and including, the date of such
termination. Thereafter, Tenant shall forthwith pay to Landlord, at Landlord's
option, as and for liquidated and agreed current damages for Tenant's default,
either:
(a) the sum of:
(i) the worth at the time of award of the unpaid Rent which had
been earned at the time of termination,
28
<PAGE>
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided,
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided, and
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom.
In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using the
San Francisco Federal Funds Rate plus one percent and the Additional
Rent shall be deemed to be the same as for the then-current Fiscal
Year or, if not determinable, the immediately preceding Fiscal Year,
for the remainder of the Term, or such other amount as either party
shall prove reasonably could have been eamed during the remainder of
the Term or any portion thereof; or
(b) without termination of Tenant's right to possession of the Leased
Property, each installment of said Rent and other sums payable by
Tenant to Landlord under the Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue
Rate from the date when due until paid, and Landlord may enforce, by
action or otherwise, any other term or covenant of this Lease.
Landlord may sue repeatedly to collect such damages from time to time.
16.6 Additional Remedies. Landlord has all other remedies that may be
-------------------
available under applicable law.
16.7 Appointment of Receiver. Upon the occurrence of an Event of
-------------- --------
Default, and upon filing of a suit or other commencement of judicial proceedings
to enforce the rights of Landlord hereunder, Landlord shall be entitled, as a
matter of right, to the appointment of a receiver or receivers acceptable to
Landlord of the Leased Property and the Facility and of the revenues, earnings,
income, products and profits thereof, pending such proceedings, with such powers
as the court making such appointment shall confer.
16.8 Waiver. If this Lease is terminated pursuant to Section 16.1,
------ ------------
Tenant waives, to the extent permitted by applicable law (a) any right of
redemption, re-entry or repossession and (b) any right to a trial by jury in the
event of summary proceedings to enforce the remedies set forth in this Article
-------
16.
- --
29
<PAGE>
16.9 Application of Funds. Any payments received by Landlord under any
-------------- -----
of the provisions of this Lease during the existence or continuance of any
Event of Default (and such payment is made to Landlord rather than Tenant due to
the existence of an Event of Default) shall be applied to Tenant's obligations
in the order which Landlord may determine or as may be prescribed by the laws of
the State.
16.10 Impounds. Landlord shall have tile right during the continuance
--------
of an Event of Default to require Tenant to pay to Landlord an additional
monthly sum (each an "Impound Payment") sufficient to pay the Impound Charges
----------------
(as hereinafter defined) as they become due. As used herein, "Impound Charges"
---------------
shall mean real estate taxes on the Leased Property or payments in lieu thereof
and premiums on any insurance required by this Lease. Landlord shall determine
the amount of the Impound Charges and of each Impound Payment. The Impound
Payments shall be held in a separate account and shall not be commingled with
other funds of Landlord and interest thereon shall be held for the account of
Tenant. Landlord shall apply the Impound Payments to the payment of the Impound
Charges in such order or priority as Landlord shall determine or as required by
law. If at any time the Impound Payments theretofore paid to Landlord shall be
insufficient for the payment of the Impound Charges, Tenant, within 10 days
after Landlord's demand therefor, shall pay the amount of the deficiency to
Landlord.
ARTICLE 17- LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
-----------------------------------------------------
If Tenant shall fail to make any payment or to perform any act
required to be made or performed under this Lease, and to cure the same within
the relevant time periods provided in Section 16.1, Landlord, after notice to
------------
and demand upon Tenant, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Tenant.
Landlord may, to the extent permitted by law, enter upon the Leased Property for
such purpose and take all such action thereon as, in Landlord's opinion, may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all costs and expenses (including
reasonable attorneys' fees and expenses, to the extent permitted by law) so
incurred, together with a late charge thereon at the Overdue Rate from the date
on which such sums or expenses are paid or incurred by Landlord, shall be paid
by Tenant to Landlord on demand. The obligations of Tenant and rights of
Landlord contained in this Article 17 shall survive the expiration or earlier
----------
termination of this Lease.
ARTICLE 18- LEGAL REQUIREMENTS
------------------------------
Subject to Article 12 regarding permitted contests, Tenant, at its
----------
expense, shall promptly (a) comply with all Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and
restoration of the Leased Property, whether or not compliance therewith shall
require structural changes in any of the Leased Improvements or interfere with
the use and enjoyment of the Leased Property; and (b)procure, maintain and
comply with all licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.
30
<PAGE>
ARTICLE 19- HOLDING OVER
------------------------
If, with Landlord's consent, Tenant shall for any reason remain in
possession of the Leased Property after the expiration of the Term or earlier
termination of the Term hereof, such possession shall be as a month-to-month
tenant during which time Tenant shall pay as rental each month, 125% of the
aggregate of (i) one-twelfth of the aggregate Base Rent and Additional Rent
payable with respect to the last Fiscal Year of the preceding Term; (ii) all
Additional Charges accruing during the month; and (iii) all other sums, if any,
payable by Tenant pursuant to the provisions of this Lease with respect to the
Leased Property. During such period of month-to-month tenancy, Tenant shall be
obligated to perform and observe all of the terms, covenants and conditions of
this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to month-to-month tenancies, to continue its occupancy and
use of the Leased Property. Nothing contained herein shall constitute the
consent, express or implied, of Landlord to the holding over of Tenant after the
expiration or earlier termination of this Lease, and Landlord may at its option
eject Tenant and recover damages for wrongful holdover.
ARTICLE 20- RISK OF LOSS
------------------------
20.1 Risk of Loss. During the Term of this Lease, the risk of loss or
------------
of decrease in the enjoyment and beneficial use of the Leased Property as a
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than by Landlord and those claiming
from, through or under Landlord) is assumed by Tenant. In the absence of gross
negligence, willful misconduct or breach of this Lease by Landlord pursuant to
Section 24.3, Landlord shall in no event be answerable or accountable therefor
- ------------
nor shall any of the events mentioned in this Article 20 entitle Tenant to any
----------
abatement of Rent (except as provided in Section 20.2).
-------------
20.2 Unavoidable Events. If at any time during the Term of this Lease,
------------------
the Facility is rendered Unsuitable For Its Primary Intended Use for a period in
excess of 180 consecutive days by reason of one or more of the following events
(each, an "Unavoidable Event"):
-----------------
(a) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use of the Leased Property or any portion thereof, including without
limitation any such prohibition or restriction resulting from Legal Requirements
(excepting any such prohibition or restriction caused by the actions,
negligence or intentional misconduct of Tenant);
(b) the interference with Tenant's use of the Leased Property or any
material portion thereof by any Person having a paramount right, title or
interest in the Leased Property (excepting any such interference caused by the
actions, negligence or intentional misconduct of Tenant);
(c) declared or undeclared war, sabotage, riot or other acts of civil
disobedience, or the acts or omissions by governmental agencies; or
31
<PAGE>
(d) the interference with Tenant's use of the Leased Property or any
material portion thereof caused by the actions, negligence or intentional
misconduct of Landlord or caused by the default or breach of any of Landlord's
representations or warranties hereunder;
then Tenant shall have the right to terminate this Lease by giving Landlord
written notice of such termmation. The effective date of such termination shall
be 90 days after Landlord's receipt of said written notice of termination;
provided, however, if Landlord elects to remedy or remove the restrictions or
interferences referenced above or otherwise correct or restore the Facility and
within said 90 day period the Facility is made suitable for its Primary Intended
Use, Tenant's election to terminate the Lease shall be deemed rescinded and the
Lease shall remain in full force and effect. During the period in which the
Facility is rendered Unsuitable For Its Primary Intended Use as a result of an
Unavoidable Event, the Base Rent shall be deemed to be zero and Tenant's payment
of Rent shall consist only of the payment of Additional Rent in accordance with
Section 9 of the Basic Lease Provisions and Additional Charges as required by
- ---------
the Detailed Lease Provisions. This Article 20 shall not limit or restrict
----------
Tenant's rights or obligations under Article 14 of this Lease.
----------
ARTICLE 21 - INDEMNIFICATION
----------------------------
21.1 Tenant's Indemnification of Landlord. Except as otherwise
------------------------------------
provided in Sections 8.5 and 21.2 and the last sentence of Section 8.2 and
------------ ---- -----------
notwithstanding the existence of any insurance provided for in Article 13, and
----------
without regard to the policy limits of any such insurance, Tenant will protect,
indemnify, save harmless and defend Landlord from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon or incurred by or asserted against Landlord by reason of:
(a) any accident, injury to or death of Persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks during the Term of this Lease, including, but not limited
to, any accident, injury to or death of Person or loss of or damage to
property resulting from golf balls, golf clubs, golf shoes, lawn
mowers or other gardening devices, golf carts, tractors or other
motorized vehicles present on or adjacent to the Leased Property;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of the Leased Property;
(c) any Impositions (which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease);
(d) any failure on the part of Tenant to perform or comply with any of
the terms of this Lease;
(e) the non-performance of any of the terms and provisions of any and
all existing and future subleases of the Leased Property to be
performed by the landlord (Tenant) thereunder; and
32
<PAGE>
(f) any liability Landlord may incur or suffer as a result of any
permitted contest by Tenant pursuant to Article 12.
----------
21.2 Landlord's Indemnification of Tenant. Landlord shall not be
------------------------------------
required to indemnify Tenant hereunder; provided, however, Landlord shall
protect, indemnify, save harmless and defend Tenant from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including reasonable attorneys' fees) imposed upon or incurred by
or asserted against Tenant as a result of Landlord's active negligence or
willful misconduct, or Landlord's breach of this Lease.
21.3 Mechanics of Indemnification. As soon as reasonably practicable
----------------------------
after receipt by the indemnified party of notice of any liability or claim
incurred by or asserted against the indemnified party that is subject to
indemnification under this Article 21, the indemnified party shall give notice
----------
thereof to the indemnifying party. The indemnified party may at its option
demand indemnity under this Article 21 as soon as a claim has been threatened by
----------
a third party, regardless of whether an actual loss has been suffered, so long
as the indemnified party shall in good faith determine that such claim is not
frivolous and that the indemnified party may be liable for, or otherwise incur,
a loss as a result thereof and shall give notice of such determination to the
indemnifying party. The indemnified party shall permit the indemnifying party,
at its option and expense, to assume the defense of any such claim by counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party, and to settle or otherwise dispose of the same; provided,
---------
however, that the indemnified party may at all times participate in such defense
- -------
at its expense; and provided further, however, that the indemnifying party shall
----------------- -------
not, in defense of any such claim, except with the prior written consent of the
indemnified party, consent to the entry of any judgment or to enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff in question to the indemnified party and its
affiliates a release of all liabilities in respect of such claims, or that does
not result only in the payment of money damages by the indemnifying party. If
the indemnifying party shall fail to undertake such defense within 30 days after
such notice, or within such shorter time as may be reasonable under the
circumstances, then the indemnified party shall have the right to undertake the
defense, compromise or settlement of such liability or claim on behalf of and
for the account of the indemnifying party.
21.4 Survival of Indemnification Obligations. Tenant's or Landlord's
----------- ---------------------------
liability for a breach of the provisions of this Article 21 arising during the
----------
Term hereof shall survive any termination of this Lease.
21.5 Non-Applicability. The terms and conditions of this Article 21
----------------- ----------
shall not vitiate, limit, or otherwise affect Tenant's right with respect to
Landlord's Representations and Warranties set forth in Exhibit 3.
----------
ARTICLE 22- SUBLETTING AND ASSIGNMENT
-------------------------------------
22.1 Prohibition Against Subletting and Assignment. Subject to Section
--------------------------------------------- -------
22.3, Tenant shall not, without the prior Written consent of Landlord (which
- ----
Landlord shall not unreasonably withhold), assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer (except to an Affiliate of Tenant)
the Lease or any interest therein, all or any part of the Leased
33
<PAGE>
Property or suffer or permit the Lease or the leasehold estate created hereby or
thereby or any other rights arising under the Lease to be assigned, transferred,
mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law. For purposes of this Section
-------
22.1, an assignment of the Lease shall be deemed to include any Change of
- ----
Control of Tenant, as if such Change of Control were an assignment of the Lease.
In determining whether or not to grant consent, Landlord may withhold consent if
both the proposed assignee and its principals do not have substantial experience
in maintaining and operating high quality golf course facilities or the proposed
assignee does not have adequate financial resources to perform its obligations
under the Lease.
22.2 Changes of Control. A Change of Control requiring the consent of
------------------
Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any stockholder
of Tenant of a Controlling interest in Tenant to a Person other than
an Affiliate of Tenant, other than in either case a distribution to
the public pursuant to an effective registration statement under the
Securities Act of 1933, as amended (a "Registered Offering ");
-------------------
(b) the sale, conveyance or other transfer of all or substantially all
of the assets of Tenant (whether by operation of law or otherwise);
(c) any other transaction, or series of transactions, which results in
the Affiliates of Tenant no longer having Control of Tenant (other
than through a Registered Offering); or
(d) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity owned and
Controlled by an Affiliate of Tenant), and Tenant is not the surviving
entity;
provided, however, that notwithstanding the foregoing any such
-----------------
transaction shall not be deemed a Change of Control if each of the following
conditions are met:
22.2.1 Financial Covenants. Unless a Letter of Credit in an
-------------------
amount equal to 200% of the Letter of Credit Amount is posted by Tenant
concurrently with any such consolidation, merger, sale or conveyance, the
Person formed by or surviving such transaction shall have (i) a Tangible
Net Worth not less than $30,000,000 increased by four percent per annum
compounded annually from the Commencement Date to the date of the Change of
Control and (ii) a Fixed Charge Coverage Ratio of not less than 1.5 to 1.0
for two consecutive Fiscal Quarters.
22.2.2 Maintenance and Operating Standards. The surviving
-----------------------------------
entity shall maintain and operate the Leased Property at a standard at
least as high in the reasonable judgment of Landlord as that maintained and
operated by Tenant prior to the Change of Control.
34
<PAGE>
22.2.3 Commitment to the Golf Industry. Immediately after such
--------------------------------
consolidation, merger, sale or conveyance, the surviving entity and its
Affiliates shall have not less than 80 total golf courses (or less if
acceptable to Landlord) under management or lease.
22.3 Subleases.
---------
22.3.1 Permitted Subleases. Tenant shall, with Landlord's prior
-------------------
approval (which shall not be unreasonably withheld or delayed if the
quality of the operation of the Leased Property is not adversely impacted),
be permitted to sublease portions of the Leased Property to concessionaires
or licensees to:
(a) operate golf professionals' shops;
(b) operate golf driving ranges;
(c) provide golf lessons;
(d) operate restaurants;
(e) operate bars;
(f) hold and conduct a Special Event; and
(g) operate any other portions (but not the entirety) of the Leased
Property customarily associated with or incidental to the operation of
the Golf Course.
22.3.2 Terms of Sublease. Each sublease of any of the Leased
Property shall be subject and subordinate to the provisions of this Lease.
No sublease made as permitted by Section 22.3.1 shall affect or reduce any
--------------
of the obligations of Tenant hereunder, and all such obligations shall
continue in full force and effect as if no sublease had been made. No
sublease shall impose any additional obligations on Landlord under this
Lease.
22.3.3 Copies. Tenant shall, within 10 days after the
------
execution and delivery of any sublease permitted by Section 22.3.1, deliver
--------------
a duplicate original thereof to Landlord.
22.3.4 Assignment of Rights in Subleases. As security for
---------------------------------
performance of its obligations under this Lease, Tenant hereby grants,
conveys and assigns to Landlord all right, title and interest of Tenant in
and to all subleases now in existence or hereinafter entered into for any
or all of the Leased Property, and all extensions, modifications and
renewals thereof and all rents, issues and profits therefrom. Landlord
hereby grants to Tenant a license to collect and enjoy all rents and other
sums of money payable under any sublease of any of the Leased Property;
provided, however, that Landlord shall have the absolute right at any time
after the occurrence and continuance of an Event of Default upon notice to
Tenant and any subtenants to revoke
35
<PAGE>
said license and to collect such rents and sums of money and to retain the
same. Tenant shall not (i) after the occurrence and continuance of an Event
of Default, consent to, cause or allow any material modification or
alteration of any of the terms, conditions or covenants of any of the
subleases or the termination thereof, without the prior written approval of
Landlord nor (ii) accept any rents (other than customary security deposits)
more than 90 days in advance of the accrual thereof nor permit anything to
be done, the doing of which, nor omit or refrain from doing anything, the
omission of which, will or could be a breach of or default in the terms of
any of the subleases.
22.3.5 Licenses, Etc. For purposes of Sections 22.1, 22.3 and
------------- -----------------------
22.5, subleases shall be deemed to include any licenses, concession
----
arrangements, management contracts or other arrangements relating to the
possession or use of all or any part of the Leased Property.
22.4 Assignment. No assignment shall in any way impair the continuing
----------
primary liability of Tenant hereunder, and no consent to any assignment in a
particular instance shall be deemed to be a waiver of the prohibition set forth
in Article 22. Any assignment shall be solely of Tenant's entire interest in
----------
this Lease. Any assignment or other transfer of all or any portion of Tenant's
interest in the Lease in contravention of Article 22 shall be voidable at
----------
Landlord's option.
22.5 REIT Limitations. Anything contained in this Lease to the
----------------
contrary notwithstanding, Tenant shall not (i) sublet or assign the Leased
Property or this Lease on any basis such that the rental or other amounts to be
paid by the sublessee or assignee thereunder would be based, in whole or in
part, on the income or profits derived by the business activities of the
sublessee or assignee; (ii) sublet or assign the Leased Property or this Lease
to any person that Landlord owns, directly or indirectly (by applying
constructive ownership rules set forth in Section 856(d)(5) of the Code), a 10%
or greater interest in; or (iii) sublet or assign the Leased Property or this
Lease in any other manner or otherwise derive any income which could cause any
portion of the amounts received by Landlord pursuant to this Lease or any
sublease to fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or which could cause any other income received by
Landlord to fail to qualify as income described in Section 856(c)(2) of the
Code. The requirements of this Section 22.5 shall likewise apply to any further
------------
subleasing by any subtenant.
ARTICLE 23 - OFFICER'S CERTIFICATES AND OTHER STATEMENTS
--------------------------------------------------------
23.1 Officer's Certificates. At any time, and from time to time upon
----------------------
Tenant's receipt of not less than 10 days' prior written request by Landlord,
Tenant will furnish to Landlord an Officer's Certificate certifying that:
(a) this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth
the modifications);
(b) the dates to which the Rent has been paid;
36
<PAGE>
(c) whether or not to the best knowledge of Tenant, Landlord is in
default in the performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying each such default of
which Tenant may have knowledge;
(d) that, except as otherwise specified, there are no proceedings
pending or, to the knowledge of the signatory, threatened, against
Tenant before or by any court or administrative agency which, if
adversely decided, would materially and adversely affect the financial
condition and operations of Tenant; and
(e) responding to such other questions or statements of fact as
Landlord shall reasonably request.
Tenant's failure to deliver such statement within such time shall
constitute an acknowledgment by Tenant that this Lease is unmodified and in full
force and effect except as may be represented to the contrary by Landlord,
Landlord is not in default in the performance of any covenant, agreement or
condition contained in this Lease and the other matters set forth in such
request, if any, are true and correct. Any such certificate furnished pursuant
to this Section 23.1 may be relied upon by Landlord.
------------
23.2 Annual Financial Statements of Tenant. Tenant will furnish to
-------------------------------------
Landlord, within 60 days after the end of Tenant's fiscal year, a copy of its
audited consolidated balance sheet as of the end of such fiscal year, and
related audited consolidated statement of income and statement of cash flows for
such fiscal year (each with footnotes), prepared by a nationally recognized
accounting firm in accordance with generally accepted accounting principles
applied on a basis consistently maintained throughout the period involved. All
annual financial statements shall be accompanied by a certificate of an officer
and the chief accounting officer of Tenant delivered with such statements,
stating (i) that the officers know of no Event of Default, or event which, upon
notice or the passage of time or both, would become an Event of Default, which
has occurred and is continuing under this Lease or, if any such event has
occurred or is continuing, specifying the nature and period of existence thereof
and what action Tenant has taken or proposes to take with respect thereto, and
(ii) except as otherwise specified in such certificate, that to the best of such
officers' knowledge, Tenant has fulfilled all of its obligations under this
Lease which are required to be fulfilled on a prior date to such certificate.
23.3 Environmental Statements. Immediately upon Tenant's learning, or
------------------------
having reasonable cause to believe, that any Hazardous Material in a quantity
sufficient to require remediation or reporting under applicable law is located
in, on or under the Leased Property or any adjacent property, Tenant shall
notify Landlord in writing of (a) any enforcement, cleanup, removal, or other
governmental or regulatory action instituted, completed threatened; (b) any
claim made or threatened by any Person against Tenant or the Leased Property
relating to damage, contribution, cost recovery, compensation, loss, or injury
resulting from or claimed to result from any Hazardous Material; and (c) any
reports made to any federal, state or local environmental agency arising out of
or in connection with any Hazardous Material in or removed from the Leased
Property, including any complaints, notices, warnings or asserted violations in
connection therewith.
37
<PAGE>
ARTICLE 24 - LANDLORD MORTGAGES
-------------------------------
24.1 Landlord May Grant Liens. Subject to Section 24.2, without the
------------------------ ------------
consent of Tenant, Landlord may, from time to time, directly or indirectly,
create or otherwise cause to exist any lien, encumbrance or title retention
agreement ("Landlord's Encumbrance") upon the Leased Property, or any portion
----------------------
thereof or interest therein, whether to secure any borrowing or other means of
financing or refinancing. This Lease is and at all times shall be subject and
subordinate to any ground or underlying leases, mortgages, trust deeds or like
encumbrances, which may now or hereafter affect the Leased Property and to all
renewals, modifications, consolidations, replacements and extensions of any such
lease, mortgage, trust deed or like encumbrance. This clause shall be self-
operative and no further instrument of subordination shall be required by any
ground or underlying lessor or by any mortgagee or beneficiary, affecting any
lease or the Leased Property. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Landlord may request for such
purposes.
24.2 Tenant's Non-Disturbance Rights. So long as Tenant shall pay all
-------------------------------
Rent as the same becomes due and shall fully comply with all of the terms of
this Lease and fully perform its obligations hereunder, none of Tenant's rights
under this Lease shall be disturbed by the holder of any Landlord's Encumbrance
which is created or otherwise comes into existence after the Commencement Date.
24.3 Breach by Landlord. It shall be a breach of this Lease if
------------------
Landlord shall fail to observe or perform any material term, covenant or
condition of this Lease on its part to be performed and such failure shall
continue for a period of 30 days after notice thereof from Tenant, unless such
failure cannot with due diligence be cured within a period of 30 days, in which
case such failure shall not be deemed to continue if Landlord, within said 30-
day period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof. The time within which Landlord shall be
obligated to cure any such failure shall also be subject to extension of time
due to the occurrence of any Unavoidable Delay.
24.4 Facility Mortgage Protection. Tenant agrees that the holder of
----------------------------
any Landlord Encumbrance shall have no duty, liability or obligation to perform
any of the obligations of Landlord under this Lease, but that in the event of
Landlord's default with respect to any such obligation, Tenant will give any
such holder whose name and address have been furnished to Tenant in writing for
such purpose notice of Landlord's default and allow such holder thirty (30) days
following receipt of such notice for the cure of said default before invoking
any remedies Tenant may have by reason thereof.
ARTICLE 25 - MISCELLANEOUS
--------------------------
25.1 Landlord's Right to Inspect. Tenant shall permit Landlord and
---------------------------
its authorized representatives to inspect the Leased Property during usual
business hours subject to any security, health, safety or confidentiality
requirements of Tenant or any governmental agency or insurance requirement
relating to the Leased Property, or imposed by law or applicable regulations.
Landlord shall indemnify Tenant for all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or
38
<PAGE>
nature whatsoever which may be imposed on, incurred by, or asserted against
Tenant by reason of Landlord's inspection pursuant to this Section 25.1.
------------
25.2 No Waiver. No failure by Landlord to insist upon the strict
---------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
25.3 Remedies Cumulative. To the extent permitted by law, each legal,
-------------------
equitable or contractual right, power and remedy of Landlord now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy. The
exercise or beginning of the exercise by Landlord of any one or more of such
rights, powers and remedies shall not preclude the simultaneous or subsequent
exercise by Landlord of any or all of such other rights, powers and remedies.
25.4 Acceptance of Surrender No surrender to Landlord of this Lease or
-----------------------
of the Leased Property or any part thereof, or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Landlord and no
act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
25.5 No Merger of Title. There shall be no merger of this Lease or of
------------------
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
25.6 Conveyance by Landlord. If Landlord shall convey the Leased
----------------------
Property in accordance with the terms hereof other than as security for a debt,
Landlord shall, upon the written assumption by the transferee of the Leased
Property of all liabilities and obligations of the Lease be released from all
future liabilities and obligations under this Lease arising or accruing from and
after the date of such conveyance or other transfer as to the Leased Property.
All such future liabilities and obligations shall thereupon be binding upon the
new owner.
25.7 Quiet Enjoyment. So long as Tenant shall pay all Rent as the
----------------
same becomes due and shall fully comply with all of the terms of this Lease and
fully perform its obligations hereunder, Tenant shall peaceably and quietly
have, hold and enjoy .the Leased Property for the Term hereof, free of any claim
or other action by Landlord or anyone claiming by, through or under Landlord,
but subject to all liens and encumbrances of record as of the date hereof or any
Landlord's Encumbrances.
25.8 Notices. All notices, demands, requests, consents, approvals and
-------
other communications hereunder shall be in writing and delivered or mailed (by
registered or certified mail, return receipt requested and postage prepaid),
addressed to the respective parties, as provided in the Basic Lease Provisions.
39
<PAGE>
25.9 Survival of Claims. Anything contained in this Lease to the
------------------
contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination of this Lease shall survive
such termination.
25.10 Invalidity of Terms or Provisions. If any term or provision of
---------------------------------
this Lease or any application thereof shall be invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.
25.11 Prohibition Against Usury. If any late charges provided for in
-------------------------
any provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
25.12 Amendments to Lease. Neither this Lease nor any provision
-------------------
hereof may be changed, waived, discharged or terminated except by an instrument
in writing and in recordable form signed by Landlord and Tenant.
25.13 Successors and Assigns. All the terms and provisions of this
----------------------
Lease shall be binding upon and inure to the benefit of the parties hereto. All
permitted assignees or sublessees shall be subject to the terms and provisions
of this Lease.
25.14 Titles. The headings in this Lease are for convenience of
------
reference only and shall not limit or otherwise affect the meaning hereof.
25.15 Governing Law. This Lease shall be governed by and construed in
------------
accordance with the laws of the State of Oregon (but not including its conflict
of laws rules), except for those certain procedural laws which must be governed
by the laws of the location of the Leased Property.
25.16 Memorandum of Lease. Landlord and Tenant shall, promptly upon
-------------------
the request of either, enter into a short form memorandum of this Lease, in form
and substance satisfactory to Landlord and suitable for recording under the
State, in which reference to this Lease, and all options contained herein, shall
be made. Tenant shall pay all costs and expenses of recording such Memorandum of
Lease
25.17 Attorneys' Fees. In the event of any dispute between the
---------------
parties hereto involving the covenants or conditions contained in this
Lease or arising out of the subject matter of this Lease, the prevailing
party shall be entitled to recover against the other party reasonable attorneys'
fees and court costs.
25.18 Non-Recourse as to Landlord. Anything contained herein to the
---------------------------
contrary notwithstanding, any claim based on or in respect of any liability of
Landlord under this Lease shall be enforced only against the Leased Property and
not against any other assets, properties or funds of (a) Landlord, (b)any
director, officer, general partner, limited partner, employee or agent of
Landlord, or with respect to any general partner of Landlord, any of their
respective general partners or stockholders (or any legal representative, heir,
estate, successor or assign of any thereof), (c) any predecessor or successor
partnership or corporation (or other entity) of
40
<PAGE>
Landlord, or any of their respective general partners, either directly or
through either Landlord or their respective general partners or any predecessor
or successor partnership or corporation or their stockholders, officers,
directors, employees or agents (or other entity), or (d) any other Person
affiliated with any of the foregoing, or any director, officer, employee or
agent of any thereof.
25.19 No Relationship. Landlord shall in no event be construed for
---------------
any purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to the
Leased Property or any of the Other Leased Properties or otherwise in the
conduct of their respective businesses.
25.20 Signs; Reletting. If Tenant exercises its option not to extend
----------------
or further extend the Term under Section 2.2 or if an Event of Default occurs,
-----------
then Landlord shall have the right during the remainder of the Term then in
effect (i) to advertise the availability of the Leased Property for sale or
reletting and to erect upon the Leased Property signs indicating such
availability and (ii) to show the Leased Property to prospective purchasers or
tenants or their agents at such reasonable times as Landlord may elect.
25.21 Landlord's Consent. Wherever Landlord's consent or approval is
------------------
called for under this Lease, such consent or approval may be withheld for any
reason or for no reason unless the provision calling for consent provides a
different standard.
25.22 Standard for Reasonable Consent. Where any provision of this
-------------------------------
Lease requires Landlord to be reasonable in giving or withholding consent,
Landlord may base its decision on what is in the long-term best interests of the
Facility and the Venture. This provision shall not apply to consents
contemplated by Section 22.1 and the standard set forth therein shall apply to
------------
the proposed assignment or subletting.
41
<PAGE>
EXHIBIT A
---------
Defined Terms; Interpretation
-----------------------------
Defined Terms. For all purposes of this Lease, except as otherwise expressly
- -------------
provided or unless the context otherwise requires, the terms defined below have
the meanings assigned to them below. Unless otherwise indicated, references to
Section numbers shall mean the Sections in the Detailed Lease Provisions.
Additional Charges: As defined in Section 3.4.
------------------ ------------
Additional Rent: As defined in Basic Lease Provisions.
---------------
Affiliate: As applied to any Person, means any other Person
---------
directly or indirectly controlling, controlled by, or under common control with,
that Person.
Agency: As defined in Basic Lease Provisions.
------
Annual Base Rent: As defined in the Basic Lease Provisions.
----------------
Annual Excess Initiation Fee Revenue: As defined in Section 17 of the
------------------------------------ ----------
Basic Lease Provisions.
Applicable Percentage: As defined in the Basic Lease Provisions.
---------------------
Award: Means all compensation, sums or anything of value awarded,
-----
paid or received on a total or partial Condemnation.
Base Rent: Means one-twelfth of the Annual Base Rent.
---------
Basic Lease Provisions: The provisions so labelled starting on page
----------------------
(i) of this Lease.
Budget: As defined in Basic Lease Provisions.
------
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
------------
which is not a day on which national banks in the City of New York, New York,
are authorized, or obligated, by law or executive order, to close.
Change of Control of Control: As defined in Section 22.2.
---------------------------- ------------
Code: The Internal Revenue Code of 1986, as amended.
----
Collection Period: As defined in Section 15 of the Basic Lease
----------------- ----------
Provisions.
Commencement Date: As defined in the Basic Lease Provisions.
-----------------
A-l
<PAGE>
Condemnation: Means (a) the exercise of any governmental power, whether by
------------
legal proceedings or otherwise, by a Condemnor, and (b) a voluntary sale or
transfer by Landlord to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending.
Condemnation Threshold: Means, as of any given date, an amount determined
----------------------
by dividing (i) the aggregate Base Rent and Additional Rent under this Lease for
the most recent 12 full calendar months by (ii) the average dividend yield for
such 12 month period on the common stock then issued and outstanding of
Landlord's general partner.
Condemnor: Means any public or quasi-public authority, or private
---------
corporation or individual, having the power of condemnation.
Conditions: As defined in Basic Lease Provisions.
----------
Consumer Price Index: Means the Consumer Price Index for Urban Wage
--------------------
Earners and Clerical Workers for the Los Angeles-Anaheim-Riverside, California
or alternative index such as national index areas.
Control: Means (including, with correlative meanings, the terms
-------
"controlling" and "controlled by"), as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
Course Revenue: Means all revenues received (whether by Tenant or any
--------------
subtenants, concessionaires or licensees) from or by reason of the operation of
the Facility, or any other use of the Leased Property, including revenues from
memberships (to the extent the membership was sold on or after the Commencement
Date or to the extent revenue is received by Tenant for a membership sold
previous to the Commencement Date), initiation fees (to the extent the
membership was sold on or after the Commencement Date or to the extent such fees
are received by Tenant for a membership sold previous to the Commencement Date),
dues, greens fees, fees to reserve a tee time, golf-related guest fees or golf
cart rentals, golf-related surcharges, fees or other charges paid to Tenant by
sponsors of golf tournaments at the Leased Property (unless the terms under
which Tenant is paid by such sponsor do not comply with Section 22.5, in which
------------
event the gross revenues received by such sponsor for the tournament shall be
included in Course Revenue), provided, however, that Course Revenue shall not
-------- -------
include :
(a) Other Revenue;
(b) Cash refunds or credits allowed on returns by customers;
(c) The amount of any city, county, state or federal sales or excise
tax on sales, which is both added to the selling price and paid to the
taxing authority by Tenant; and the amount of any city, county, state,
or federal
A-2
<PAGE>
admission tax or use tax, which is paid to the relevant taxing authority
by Tenant;
(d) The actual uncollectible amount of any check or bank draft
received by Tenant as payment for goods or services and returned to
Tenant from a customer's bank as being uncollectible, but only after
Tenant has made reasonable efforts to collect on the check;
(e) The actual uncollectible amount of any charge or credit account
incurred by Tenant for the sale of merchandise or services; provided,
---------
however, that the credit was extended to the customer by Tenant, and that
-------
reasonable efforts to collect said account have been made;
(f) The actual uncollectible amount of any sale of merchandise or services
for which Tenant accepted a credit card; provided, however, that Tenant has
-----------------
made reasonable efforts to collect the debt after being notified by the
issuing bank of the invalidity or uncollectibility of the charge;
(g) Interest or other charges paid by customers for extension of credit;
(h) Revenue or proceeds from sales or trade-ins of machinery, vehicles,
trade fixtures or personal property used in connection with Tenant's
operation of the Leased Property;
(i) The value of any merchandise, supplies or equipment exchanged or
transferred from or to other locations or businesses of Tenant where such
exchange or transfer is not made for the purpose of avoiding a sale which
would otherwise be made from or at the Leased Property;
(j) Revenue, if any, from receipts in the form of refunds from or the value
of merchandise, supplies or equipment returned to shippers, suppliers or
manufacturers;
(k) Revenue, if any, from the amount of any cash or quantity discounts
received from sellers, suppliers or manufacturers;
(l) The amount of any gratuities paid or given by customers to or for
employees of Tenant;
(m) Receipts from the sales of uniforms or clothing required to be worn by
employees;
(n) Revenues from charging employees for meals served or provided to
employees of Tenant;
A-3
<PAGE>
(o) Receipts from the sale of waste or scrap materials resulting
from Tenant's operations;
(p) Revenue received from any subtenant, concessionaire or
licensee, inasmuch as the gross revenue received by such
subtenant, concessionaire or licensee is otherwise included in
the definition of Course Revenue or Other Revenue;
(q) Gross revenue received by any sponsor of a golf tournament at
the Leased Property, provided that the terms under which Tenant
is paid surcharges, fees or other charges by such sponsor comply
with Section 22.5;
------------
(r) Receipts from the sales of supplies or inventory by Tenant to
subtenants, concessionaires, or licensees provided that such
sales are at Tenant's cost of such supplies or inventories with
no mark-up or premium;
(s) Special Event Costs and Fees;
(t) Annual Excess Initiation Fee Revenue; and
(u) Cumulative Excess Initiation Fee Revenue.
For purposes of this definition of Course Revenue, all references to
Tenant in clauses (a) through (r) above shall also include any subtenants,
concessionaires and licensees.
Cumulative Benchmark: As defined in Section 17 of the Basic Lease
-------------------- ----------
Provisions.
Cumulative Excess Initiation Fee Revenue: As defined in Section 17 of
---------------------------------------- ----------
the Basic Lease Provisions.
Cumulative Period: As defined in Section 17 of the Basic Lease
----------------- ----------
Provisions.
Date of Taking: Means the date the Condemnor hall the right to
--------------
possession of the property being condemned.
Environmental Law: Means all applicable statutes, regulations, rules,
-----------------
ordinances, codes, licenses, permits, orders, demands, approvals, authorizations
and similar items of all governmental agencies, departments, commissions,
boards, bureaus or instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and regulatory
decrees, judgments and orders relating to the protection of human health or the
environment as in effect on the Commencement Date or as thereafter amended,
including but not limited to those pertaining to reporting, licensing,
permitting, investigation, removal and remediation of emissions, discharges,
releases or threatened releases of "Hazardous Materials," substances,
pollutants, contaminants or hazardous or toxic substances, materials or wastes
A-4
<PAGE>
whether solid, liquid or gaseous in nature, into the air, surface water, ground
water or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of substances, pollutants,
contaminants or hazardous or toxic substances, materials, or wastes, whether
solid, liquid or gaseous in nature, including: (x) the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. (S) 9601 et
--
seq.), the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.),
- --- ------
the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Federal Water Pollution
------
Control Act (33 U.S.C. (S) 1251 et seq.), the Safe Drinking Water Act (42 U.S.C.
------
(S) 300f et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et
------ --
seq.), the Endangered Species Act (16 U.S.C. (S) 1531 et seq.), the Emergency
- --- ------
Planning and Community Right-to-Know Act of 1986 (42 U.S.C: (S) 11001 et seq.),
------
and (y) analogous state and local provisions.
Event of Default: As defined in Section 16.1.
---------------- -------------
Extended Terms: As defined in the Basic Lease Provisions.
--------------
Facility: As defined in the Basic Lease Provisions.
--------
Facility Mortgage: As defined in Section 13.1.
----------------- -------------
Facility Mortgagee: Means the holder or beneficiary of a Facility
------------------
Mortgage, if any, and only to the extent Landlord gives Tenant notice of the
identity and address of the Person.
Fiscal Quarter: The three-month periods (or applicable portions
--------------
thereof) in any Fiscal Year from January 1 through March 31, April 1 through
June 30, July 1 through September 30 and October 1 through December 31.
Fiscal Year: As defined in the Basic Lease Provisions.
-----------
Fixed Charge Coverage Ratio: Means, if applicable, for any period, the
---------------------------
ratio of (A) the sum of, without duplication (i) consolidated net income of
Tenant excluding any gains or losses in respect of dispositions plus (ii)
provision for taxes plus (iii) consolidated interest expense (including non-cash
interest payments or accruals and the interest component, if any, of lease
obligations of Tenant and its subsidiaries) plus (iv) all lease and rent
obligations (including percentage rent obligations) of Tenant and its
subsidiaries plus (v) other non-cash charges deducted from consolidated revenues
in determining net income for such period including depreciation and
amortization (including amortization of intangibles), over (B) the sum of (i)
consolidated interest expenses of Tenant and its subsidiaries for such period
plus (ii) all lease and rent obligations (including percentage rent obligations)
of Tenant and its subsidiaries for such period.
Fixtures: Means all permanently affixed equipment, machinery,
--------
fixtures, and other items of real and/or personal property, including all
components thereof, now and hereafter located in, on or used in connection with
and permanently affixed to or incorporated into the Leased Improvements,
including all furnaces, boilers, heaters, electrical equipment, heating,
A-5
<PAGE>
plumbing, lighting, ventilating, refrigerating, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems arid fire and theft protection equipment, all of which, to the
greatest extent permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding all items included
within the category of Tenant's Personal Property and any Tenant Improvements.
Full Replacement Cost: Means the actual replacement cost thereof from
---------------------
time to time including increased cost of construction endorsement, less
exclusions provided in the normal fire insurance policy.
Ghost Creek: As defined in Section 1 of the Basic Lease Provisions.
----------- ---------
Hazardous Material: Means any chemical substance:
------------------
(i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance,
order, action or policy, administrative request or civil
complaint under any of the foregoing or under common law;
(ii) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation
or ordinance or amendments thereto as in effect as of the
Commencement Date, or as thereafter amended, including the
Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. (S) 9601 et seq.) and/or the Resource Conservation
-------
arid Recovery Act (42 U.S.C. (S) 6901 et seq.);
-------
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and as of the Commencement Date, or as thereafter
amended, is regulated by any governmental authority, agency,
department, commission, board, or instrumentality of the United
States, or any state or any political subdivision thereof having
or asserting jurisdiction over the Leased Property;
(iv) the presence of which on any of the Leased Property causes
a nuisance upon such Leased Property or to adjacent properties or
poses a hazard to the health or safety of persons on or about any
of the Leased Property;
(v) which, except as contained in building materials, contains
gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenyls (PCBs) or friable asbestos or friable
asbestos-containing materials or urea formaldehyde foam
insulation; or
A-6
<PAGE>
(vi) radon gas.
Impartial Appraiser: As defined in Section 13.2.
------------------- -------------
Impositions: Means collectively:
-----------
(a) all taxes (including all real and personal property, ad
valorem, sales and use, single business, gross receipts,
transaction privilege, rent or similar taxes);
(b) assessments and levies (including all assessments for public
improvements or benefits, whether or not commenced or completed
prior to the date hereof and whether or not to be completed
within the Term);
(c) excises;
(d) fees (including license, permit, inspection, authorization
and similar fees); and
(e) all other governmental charges;
in each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of the Leased Property
and/or the Rent (including all interest and penalties thereon due to any failure
in payment by Tenant), which at any time during or in respect of the Term hereof
may be assessed or imposed on or in respect of or be a lien upon (i) Landlord or
Landlord's interest in the Leased Property; (ii) the Leased Property or any part
thereof or any rent therefrom or any estate, right, title or interest therein;
or (iii) any operation, use or possession of, or sales from or activity
conducted on or in connection with the Leased Property or the leasing or use of
the Leased Property or any part thereof; provided, however, that Impositions
-----------------
shall not include:
(aa) any tax based on net income (whether denominated as an
income, franchise, capital stock or other tax) imposed on
Landlord or any other Person other than. Tenant;
(bb) any transfer, or net revenue tax of Landlord or any other
Person other than Tenant;
(cc) any tax imposed solely with respect to the sale, exchange or
other disposition by Landlord of any Leased Property or the
proceeds thereof; or
(dd) any tax imposed with respect to any principal or interest on
any indebtedness on the Leased Property.
Impound Charges: As defined in Section 16.10.
--------------- -------------
A-7
<PAGE>
Impound Payment: As defined in Section 16.10.
--------------- -------------
Initial Base Rent: As defined in the Basic Lease Provisions.
-----------------
Initial Term: As defined in the Basic Lease Provisions.
------------
Initiation Fee Benchmarks: As defined in Section 17 of the Basic Lease
------------------------- ----------
Provisions.
Insurance Requirements: All terms of any insurance policy required by
----------------------
this Lease and all requirements of the issuer of any such policy.
Initial Capital Improvements: As defined in Basic Lease Provisions.
----------------------------
Inventory: As defined in the Joint Venture Agreement.
---------
Joint Venture Agreement: The agreement pursuant to which Landlord is
-----------------------
constituted, as it may be amended from time to time.
Land: As defined in Article 1.
---- ---------
Landlord: As defined in the preamble.
--------
Landlord's Encumbrance: As defined in Section 24.1.
---------------------- -------------
Landlord's Personal Property: As defined in Article 1.
---------------------------- ----------
Landlord's Representations and Warranties: As defined in Paragraph 18
-----------------------------------------
of Basic Lease Provisions and as set forth in Exhibit J.
---------
Lease: As defined in the preamble.
-----
Leased Improvements: As defined in Article 1.
------------------- ----------
Leased Property: As defined in Article 1.
--------------- ---------
Legal Requirements: All federal, state, county, municipal and other
------------------
governmental statutes, laws (including the Americans with Disabilities Act and
any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Tenant (other than
encumbrances created by Landlord without the consent of Tenant),
A-8
<PAGE>
at any time in force affecting the Leased Property; or (iii) require the cleanup
or other treatment of any Hazardous Material.
Letter of Credit: Means a letter of credit which:
----------------
(i) is an irrevocable standby letter of credit from a bank with a
long-term debt rating from each of Standard & Poor's and Moody's of
investment grade naming Landlord (and/or any Facility Mortgagee if
requested by Landlord) as beneficiary to secure Tenant's obligations
hereunder and Tenant's or an Affiliate of Tenant's obligations under
the Other Property Leases;
(ii) has a stated amount equal to the Letter of Credit Amount plus,
if the Letter of Credit is intended to satisfy Tenant's obligations
under the Other Property Leases with Landlord, the amounts required
under such other leases;
(iii) has a term of not less than one year;
(iv) provides that it will be honored upon a signed statement by
Landlord that Landlord is entitled to draw upon the Letter of Credit
under this Lease, and shall require no signature or statement from any
party other than Landlord;
(v) provides that Landlord had given not less than three (3)
Business Day's notice to Tenant prior to submitting the Letter of
Credit to the bank for presentation; and
(vi) permits multiple draws by providing that following the honor of
any drafts in an amount less than the aggregate stated amount of the
Letter of Credit, the issuing bank shall return the original Letter of
Credit to Landlord and that Landlord's rights as to the remaining
stated amount of the Letter of Credit will not be extinguished.
Letter of Credit Amount: If applicable, means, for any Fiscal Year, an
-----------------------
amount equal to six (6) months of Base Rent for such Fiscal Year.
Officer's Certificate: A certificate of Tenant signed by an officer
---------------------
authorized to so sign by the board of directors or by-laws.
Other Leased Properties: Mean the properties, if any, leased to Tenant
-----------------------
or an Affiliate of Tenant by Landlord and listed on Exhibit C.
---------
Other Property Leases: Mean the other leases, if any, entered into
---------------------
between Landlord and Tenant or an Affiliate of Tenant relating to Tenant's use
of the Other Leased Properties.
Other Revenue: Means all revenue received (whether by Tenant or any
-------------
subtenants, concessionaires or licensees) from or by reason of the Leased
Property relating to
A-9
<PAGE>
(i) the operation of snack bars, restaurants, bars and banquet operations, (ii)
golf and tennis professionals' shops on the Leased Property, (iii) parking, (iv)
fitness centers, (v) tennis facilities, (vi) day care, (vii) nongolf-related
guest fees and related surcharges, (viii) locker rentals, (ix) bag storage, (x)
video games, (xi) vending machines and (xii) fees or other charges paid to
Tenant by providers of golf lessons (unless the terms under which Tenant is paid
by such provider do not comply with Section 22.5, in which event the gross
------------
revenue received by such provider shall be included in Other Revenue); but
---
excluding: (1) the items described in clauses (b) through (t) of the definition
- ---------
of Course Revenue (for purposes of this definition of Other Revenue, all
references to Tenant in clauses (a) through (t) of the definition of Course
Revenue shall also include any subtenants, concessionaires and licensees) and
(2) gross revenue received by any provider of golf lessons, provided that the
terms under which Tenant is paid fees or other charges by such provider comply
with Section 22.5.
------------
Overdue Rate: On any date, a rate equal to 4% above the Prime Rate,
------------
but in no event greater than the maximum rate then permitted under applicable
law.
Person: Means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, Indian tribes or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
Primary Intended Use: Means the operation of a golf course, consisting
--------------------
of the Facility, and other activities customarily associated with or incidental
to the operation of a Golf Course, including sale or rental of golf-related
merchandise at a golf professional's shop, sale of memberships, furnishing of
lessons by a golf professional, operation of a driving range, and sales of food
and beverages, including liquor sales.
Prime Rate: On any date, a rate equal to the annual rate on such date
----------
announced by Citibank, N.A. to be its prime rate or base rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing but in
no event greater than the maximum rate then permitted under applicable law.
Project: As defined in Basic Lease Provisions.
-------
Pumpkin Ridge I: As defined in Section 12 of the Basic Lease
--------------- ----------
Provisions.
Related Rights: As defined in Article 1.
-------------- ----------
Rent: Collectively, the Base Rent, Additional Rent and Additional
----
Charges, all as defined in Article 3.
----------
Replacement Water Rights: Means Water Rights that provide water supply
------------------------
and transportation at a quantity, price and priority which at the time of their
acquisition are not less favorable in any material respect to the holder of the
Water Rights than the quantity, price and priority of the Water Rights which
will be replaced by such Replacement Water Rights.
A-10
<PAGE>
Special Event: As defined in Section 16 of the Basic Lease Provisions.
------------- ----------
Special Event Costs and Fees: As defined in Section 16 of the Basic
---------------------------- ----------
Lease Provisions.
State: The State or Commonwealth in which the Leased Property is
-----
located.
Tangible Net Worth: Means the total book value of the assets of Tenant
------------------
(excluding goodwill, patents, trademarks, trade names, and organizational
expense) less all liabilities.
Tenant: As defined in the preamble.
------
Tenant Improvement: As defined in Section 10.1.
------------------ ------------
Tenant's Original Water Rights: As defined in Section 6.7.
------------------------------ -----------
Tenant-Owned Names: As defined in Section 25.21.
------------------ -------------
Tenant's Personal Property: All machinery, equipment, furniture,
--------------------------
furnishings, movable walls or partitions, phone system, computers or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Tenant and used or useful in Tenant's business on the Leased Property,
including all items of furniture, furnishings, equipment, supplies and
inventory, kitchen fixtures, bar equipment, flatware, lawn mowers and other
gardening tools, tractors and other motorized vehicles and golf carts.
Term: Collectively, the Initial Term and the Extended Terms, as the
----
context may require, unless earlier terminated pursuant to the provisions
hereof.
Title Commitment: As defined in Section 12 of the Basic Lease
---------------- ----------
Provisions.
Total Revenue: The sum of Course Revenue, Other Revenue, Annual Excess
-------------
Initiation Fee Revenue and Cumulative Excess Initiation Fee Revenue.
Unavoidable Delays: Delays due to strikes, lockouts, inability to
------------------
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
- -------------
either party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party, under this Lease.
Unsuitable For Its Primary Intended Use: A state or condition of the
---------------------------------------
Facility such that in the good faith judgment of Tenant, reasonably exercised,
the Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.
A-11
<PAGE>
U.S.G.A: As defined in Section 13 of the Basic Lease Provisions.
------- ----------
Water Rights: Means any rights for the supply or transportation of
------------
water to the Leased Property owned from time to time by Landlord or Tenant,
including Tenant's Original Water Rights and the Replacement Water Rights.
Witch Hollow: As defined in Section 1 of the Basic Lease Provisions.
------------ ---------
Interpretation. The foregoing defined terms include the plural as well as the
- --------------
singular. "Including" and variants thereof shall be deemed to mean "including
without limitation." All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles as at the time applicable. All references in this Lease to designated
"Articles,""Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of the Detailed Lease Provisions unless
otherwise indicated. The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision.
A-12
<PAGE>
EXHIBIT 10.4
USGA AGREEMENT
--------------
1. Identification and Parties.
--------------------------
This USGA Agreement ("Agreement") is made and entered into this 8th day of
September, 1997 by and between PUMPKIN RIDGE JOINT VENTURE, an Oregon
partnership ("Landlord") and AMERICAN GOLF CORPORATION, a California corporation
("Tenant").
2. Recitals.
--------
2.1. Landlord is the owner of a certain thirty-six hole golf course
facility ("Facility") located in Cornelius, Oregon which Landlord leases to
Tenant pursuant to a lease ("Lease"). Concurrently with execution of the Lease,
certain partners of Landlord and Tenant entered into a Shortfall Agreement
("Shortfall Agreement").
2.2. The parties desire to undertake activities which may lead to the
selection of the Facility by the United States Golf Association ("USGA") as a
site for a future U.S. Open and/or for other USGA events. The parties believe
that selection of the Facility for such purposes will be beneficial to the
Facility.
2.3. It is the desires of the parties to reflect their agreement relative
to the use of the Facility for USGA events and to allocate (i) their respective
responsibilities, (ii) the associated costs, and (iii) distribution of proceeds.
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree the follows:
3. General Responsibilities of the Parties.
---------------------------------------
3.1. Landlord will designate three (3) representatives, who, together with
two representatives of Tenant, will take responsibility for negotiations and
discussions with USGA relative to the matters described in Section 2.2.
Landlord's initial representatives will be Marvin French, Gaylord Davis, and
Paul Major. Tenant's initial representatives will be Steve Harker and the
General Manager of the Facility. Either party may change any of its
representatives by written notice to the other.
3.2. Landlord and Tenant agree to make the Facility available for any USGA
event ("USGA Agreement") upon reasonable advance notice. The specific terms of
any agreement regarding such use must be in writing and will require the prior
consent of both Landlord and Tenant. In considering such matters, each party
agrees to act promptly and reasonably.
4. USGA Related Costs
------------------
4.1. Definition. As used herein, the term "USGA Related Costs" shall
----------
include each of the following:
2
<PAGE>
4.1. (a) All out-of-pocket costs reasonably incurred by the parties in
connection with the activities described in Section 2.2.
4.1. (b) Any out-of-pocket costs reasonably incurred by Landlord or
Tenant pursuant to a USGA Agreement, or otherwise in preparation for any USGA
event to which the parties have committed pursuant to a USGA Agreement, to the
extent that such costs would not have otherwise been incurred (e.g., costs
related to a change in golf course design, layout, or maintenance mandated by
USGA).
4.1. (c) Any reduction in Net Cash Flow (as defined in the Shortfall
Agreement) experienced by Tenant by reason of holding any USGA event (including,
without limitation, any non-revenue producing event). Any such reduction in Net
Cash Flow will be calculated in a fair and reasonable manner. If any reduction
in Net Cash Flow results from the Facility being fully or partially closed or
operations curtailed on a temporary basis, then the reduction in Net Cash Flow
shall be calculated based on the Net Cash Flow realized during the same calendar
months in the immediately preceding three years with an appropriate adjustment
for any weather conditions.
4.2. Responsibility for USGA Related Costs. Tenant will pay all USGA
-------------------------------------
related Costs up to an aggregate maximum of $150,000 ("Base Costs"). If either
party desires to incur USGA related Costs in excess of Base Costs ("Excess
Costs"), it may do so upon
3
<PAGE>
written notice to the other party which notice shall be accompanied by a
detailed summary of all such Excess Costs.
5. Allocation of USGA Related Revenue.
----------------------------------
5.1. Definition. As used herein, the term "USGA Related Revenue" means
----------
all revenue derived directly from operation of the Facility during an event held
at the Facility pursuant to a USGA Agreement. USGA Related Revenue will include
all revenues that would not have been realized had there been no USGA Agreement.
5.2. Allocation. USGA Related Revenues will be allocated between the
----------
parties in the following order of priority:
5.2.(a) First, to the parties pro rata in proportion to their
respective contributions of USGA related Costs, an amount sufficient to repay
such contributions in full.
5.2.(b) Second, the balance seventy percent (70%) to Landlord and
thirty percent (30%) to Tenant.
6. Obligation to Keep Separate Books.
---------------------------------
Tenant shall at all times keep accurate books of account and records
related to USGA Related Costs and USGA Related Revenues. Such books and records
shall be maintained separate and apart from any other books or records
concerning the operation of the Facility. All USGA Related Costs and USGA
Related Revenues will be accounted for and disbursed pursuant to this Agreement
and not the Lease. Tenant will maintain books and records related to the normal
operation of the Facility pursuant to the Lease as if this
4
<PAGE>
Agreement did not exist and as if there were no possibility of USGA events at
the Facility.
7. Miscellaneous.
-------------
7.1. Cooperation. The parties agree to take all reasonable steps consistent
-----------
with the limitations set forth herein, to secure selection of the Facility as a
U.S. Open site. Without limiting the generality of the foregoing, if the U.S.
Open is awarded to the Facility, the parties will take all reasonable actions
necessary to comply with USGA requirements.
7.2. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, oral or written, express or implied, and all
understandings, negotiations or discussions of the parties, whether oral or
written, and there are no warranties, representations or agreements between the
parties in connection with the subject matter hereof except as are set forth
herein.
7.3. Unenforceability. If any provision of this Agreement is held to be
----------------
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the remainder of such provision or any other
provisions hereof.
7.4. Amendment, Modifications. This Agreement may not be altered, amended,
------------------------
changed, waived, terminated or modified in any respect or particular unless the
same shall be in writing and signed by or on behalf of the parties hereto.
5
<PAGE>
7.5. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and to their respective successors and assigns.
7.6. Governing Law This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Oregon.
7.7. Headings. All article and paragraph titles or captions are for
--------
convenience only and shall not be deemed a part of this Agreement .
7.8. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but which when taken together shall
constitute one and the same instrument .
7.9. Notices. Any notice, demand or document which either party is
-------
required or may desire to give, deliver or make to the other party shall be in
writing, and may be personally delivered or given or made by United States
registered or certified mail, return receipt requested, by overnight delivery
service (e.g., Federal Express), or by telecopied transmission addressed as
follows:
To Landlord: National Golf Properties
2951 28th Street
Suite 3001
Santa Monica, California 90405
Attn: Scott S. Thompson, Esq.
Telecopy: (310) 664-6170
With a copy to: Pacific Estates, Ltd.
c/o Margaret B. Kushner, Esq.
Stoel Rives LLP
900 S.W. Fifth Avenue, Suite 2300
Portland, Oregon 97204
Telecopy: (503) 220-2480
6
<PAGE>
With a copy to: Pumpkin Ridge Golf Course
12930 Old Pumpkin Ridge Road
Cornelius, Oregon 97113-6147
Attn: Marvin A. French
Telecopy: (503) 647-2002
To Tenant: American Golf Corporation
2951 28th Street
Suite 3000
Santa Monica, California 90405
Attn: Legal Department
Telecopy: (310) 664-6165
With a copy to: Greenberg Glusker Fields
Claman & Machtinger LLP
1900 Avenue of the Stars
Suite 2100
Los Angeles, California 90067
Attn: William A. Halama, Esq.
Telecopy: (310) 553-0687
Either party may designate a different address for itself by notice similarly
given. Any notice, demand or document shall be deemed to have been given upon
actual delivery.
"Landlord"
PUMPKIN RIDGE JOINT VENTURE,
an Oregon partnership
By: NATIONAL GOLF OPERATING
PARTNERSHIP, L.P., a
Delaware limited partnership
BY: NATIONAL GOLF PROPERTIES,
INC., a Maryland
corporation
By: /s/ Paul Major
--------------------
Print Name: Paul Major
Title: Senior Vice President
[Signatures Continued]
7
<PAGE>
By: PUMPKIN RIDGE PARTNERS, an
Oregon partnership
By: OREGON CENTRAL
CORPORATION, a Delaware
corporation
By: /s/ Kumiko Hatori
-------------------
Print Name: Kumiko Hatori
Title: Vice President
By: PACIFIC ESTATES, LTD., an
Oregon corporation
By: /s/ Gaylord Davis
-------------------
Print Name: Gaylord Davis
Title: President
"Tenant"
AMERICAN GOLF CORPORATION,
a California corporation
By: /s/ Theodore F. Kahan
Print Name: Theodore F. Kahan
Title: Vice President/General Counsel
8
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1997 30, 1996 30, 1997 30, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Primary:
Net income.......................... $ 3,752 $ 3,401 $ 11,117 $ 9,774
=========== =========== =========== ===========
Weighted average number of shares
outstanding........................ 12,374,528 11,714,255 12,358,630 10,992,757
Incremental shares resulting from
stock options...................... 145,984 114,348 146,417 79,625
----------- ----------- ----------- -----------
Weighted average number of common
stock and common stock equivalents. 12,520,512 11,828,603 12,505,047 11,072,382
=========== =========== =========== ===========
Primary earnings per share.......... $ 0.30 $ 0.29 $ 0.89 $ 0.88
=========== =========== =========== ===========
Fully Diluted:
Net income.......................... $ 3,752 $ 3,401 $ 11,117 $ 9,774
=========== =========== =========== ===========
Weighted average number of shares
outstanding........................ 12,374,528 11,714,255 12,358,630 10,992,757
Incremental shares resulting from
stock options...................... 157,905 129,744 157,905 79,625
----------- ----------- ----------- -----------
Weighted average number of common
stock and common stock equivalents. 12,532,433 11,843,999 12,516,535 11,072,382
=========== =========== ----------- -----------
Fully diluted earnings per share.... $ 0.30 $ 0.29 $ 0.89 $ 0.88
=========== =========== =========== ===========
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
GOLF PROPERTIES, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,004
<SECURITIES> 305
<RECEIVABLES> 4,072
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,181
<PP&E> 563,484
<DEPRECIATION> 88,716
<TOTAL-ASSETS> 498,980
<CURRENT-LIABILITIES> 7,266
<BONDS> 260,238
0
0
<COMMON> 124
<OTHER-SE> 213,119
<TOTAL-LIABILITY-AND-EQUITY> 498,980
<SALES> 0
<TOTAL-REVENUES> 55,515
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,225
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,241
<INCOME-PRETAX> 19,836
<INCOME-TAX> 165
<INCOME-CONTINUING> 19,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,117
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
